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The State of Fashion 2020 VF PDF
The State of Fashion 2020 VF PDF
of Fashion
2020
The State of Fashion 2020
2
The State
of Fashion
2020
The State of Fashion 2020
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CONTENTS
ECONOMY
GLOBAL
Global Economy 18—31
01: On High Alert 19
02: Beyond China 23
Southeast Asia: A Region of Nuanced Opportunity 26
Russia: Signs of Resurgence in a Polarised Market 28
The GCC: A Region in Transition 30
CONSUMER
SHIFTS
Consumer Shifts 32—59
03: Next Gen Social 33
Want to See the Future of Social Media? Look to Asia. 37
04: In The Neighbourhood 43
Executive Interview: Pete Nordstrom 46
FASHION
SYSTEM
Unlocking the Power of Stores 50
05: Sustainability First 52
The Future of Upcycling: From Rags to Riches 56
MGFI
07: Inclusive Culture 66
Executive Interview: Annie Wu 70
08: Cross-Border Challengers 73
Executive Interview: Wang Mingqiang 76
09: Unconventional Conventions 79
Executive Interview: Raffaello Napoleone 82
10: Digital Recalibration 85
6
FOREWORD
For the fourth year in a row, The Business business and creative, for 2020. Through BoF’s
of Fashion and McKinsey & Company have teamed extensive expertise in fashion strengthened by
up to bring our trademark rigour and evidence to global industry networks, we thread McKinsey’s
debates within the global fashion industry and international perspective and analytical rigour.
to provide an authoritative annual picture of The We then bolster this with our survey of over 290
State of Fashion. This is now a knowledge base that global fashion executives (more than ever before)
we build on every year, identifying the key themes and interviews with thought leaders and pioneers.
and business imperatives shaping the industry The report also includes the fourth readout of
while tracking the ways in which fluctuations in our industry benchmark, the McKinsey Global
the world economy feed through into fashion. Fashion Index (MGFI): its extensive database of
And this coming year — perhaps more so companies allows us to analyse and compare the
than any year since we started — will see fluctua- performance of individual companies against
tions in abundance. Our first report was written in their peers, by category, segment or region.
the aftermath of the Brexit vote and went to press Four years in, this is growing to become an
the morning after Donald Trump had been elected unrivalled resource.
president of the United States. The unfolding Yet, while the coming year brings with it a
implications of both of these events continue to lot of uncertainty, exciting opportunities remain
impact the fashion market. for those who can make sense of the noise and
The year ahead will open with the industry drive innovation accordingly. Whatever your
in a state of high nervousness and uncertainty, interest in the industry — from silent investor to
with most executives across fashion and the wider concerned consumer — this report tells you all you
business world bracing for a slowdown in growth need to know about the state of fashion in 2020.
in the global economy. Because fashion is a global
business with global supply chains, industry — Achim Berg & Imran Amed
players are anxious about the impact of tariffs and
trade disputes. And in terms of digitisation and
sustainability, the fashion industry is still playing
catch-up as the challenges in these areas become
more complex. Facing these interlinked hurdles
means that not everyone can win. The battle for
resources and talent continues to make it ever
tougher for many mid-sized and smaller brands
to compete.
So how to navigate these choppy waters?
Once again our global experts bring clarity to a
fragmented landscape of categories and segments,
countries and companies by establishing a
common understanding of the forces at work
Thomas Lohr
7
CONTRIBUTORS
As founder, editor-in-chief Based in Frankfurt, Achim Anita Balchandani is a As global senior expert
and chief executive of Berg leads McKinsey’s Global Partner in McKinsey’s in McKinsey’s Apparel,
The Business of Fashion, Apparel, Fashion & Luxury London office, and leads the Fashion & Luxury group,
Imran Amed is one of the group and is active in all Apparel, Fashion & Luxury Saskia Hedrich works with
fashion industry’s leading relevant sectors including group in the United Kingdom. fashion companies around
writers, thinkers and clothing, textiles, footwear, Her expertise extends the world on strategy,
commentators. Fascinated by athletic wear, beauty, across fashion, health and sourcing optimisation,
the industry’s potent blend accessories and retailers beauty, specialty retail and merchandising transfor-
of creativity and business, spanning from the value end e-commerce. She focuses mation, and sustainability
he began BoF as a blog in to luxury. As a global fashion on supporting clients in topics — all topics she is also
The State of Fashion 2020
2007, which has since grown industry and retail expert, developing their strategic publishing about regularly.
into the pre-eminent global he supports clients on a broad responses to the disruptions Additionally, she is involved
fashion industry resource range of strategic and top shaping the retail industry in developing strategies for
serving a five-million-strong management topics, as well as and in delivering customer national garment industries
community from over 190 on operations and sourc- and brand-led growth across Africa, Asia, and Latin
countries and territories. ing-related issues. transformations. America.
Previously, he was a
consultant at McKinsey
in London.
Felix Rölkens is part of the As global markets editor of Shrina Poojara is a consultant
leadership of McKinsey’s The Business of Fashion, in McKinsey’s London office,
Apparel, Fashion & Luxury Robb Young oversees content specialising in Apparel,
group and works with from Asia-Pacific, the Middle Fashion and Luxury. She has
apparel, sportswear, and pure East, Latin America, Africa, supported apparel and beauty
play fashion e-commerce the CIS and Eastern Europe. companies in the UK and
companies in Europe and He is an expert on emerging Europe, on topics including
North America, on a wide and frontier markets, whose strategy and mergers and
range of topics including career as a fashion editor, acquisitions.
strategy, operating model business journalist, author
and merchandising and strategic consultant
transformations. has seen him lead industry
projects around the world.
8
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 our State of Fashion Survey, and the many industry experts who generously shared their perspectives
during interviews. In particular, we would like to thank: Alex Kremer, Alexander Taylor, Annie Wu, Arnold Ma, Christoph
Barchewitz, Elijah Whaley, Geoffroy van Raemdonck, Graeme Raeburn, Hiromi Yamaguchi, Kavin Bharti Mittal, Lidewij Edelkoort,
Michael Sadowski, Nina Marenzi, Pete Nordstrom, Pierre Poignant, Rafaello Napoleone, Sarah Needham, Simon Lock, Stefano
Martinetto, Wang Minqiang, Yash Mehta.
The wider BoF team has also played an instrumental role in creating this report — in particular Amanda Dargan, Anouk Vlahovic,
Casey Hall, Cheryl Wischhover, Christina Yao, Kate Vartan, Lauren Sherman, Mary Catherine Nanda, Michael Edelmann, Niamh
Coombes, Nick Blunden, Olivia Howland, Queennie Yang, Rachel Strugatz, Sarah del Corral, Sarah Kent, Venetia van Hoorn Alkema,
Victoria Berezhna, Vikram Alexei Kansara, Zoe Suen.
The authors would like to thank Marilena Schmich and Tiffany Chan from McKinsey’s Berlin and Dallas 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: Aimee Kim, Alex Sukharevsky, Alexander Dobrakovsky, Ali Potia, Alice Zheng, Anneke
Maxi Pethö-Schramm, Dale Kim, Denis Emelyantsev, Gerry Hough, Karl-Hendrik Magnus, Laura Gallagher, Maliha Khan, Martins
Mellens, Matthias Evers, Michael Chui, Nitasha Walia, Patrick Guggenberger, Sergio Velasquez-Terjesen, Shani Wijetilaka, Simon
Wintels, Thirumagal B and Tyler Harris. We also appreciate the support we have received from other McKinsey colleagues across
the globe: Adhiraj Chand, Alastair Macaulay, Althea Peng, Andres Avila, Anita Liao, Ankita Das, Antonio Achille, Antonio Gonzalo,
Cherry Chen, Claire Gu, Colleen Baum, Colin Henry, Damian Hattingh, Daniel Zipser, Emily Gerstell, Ewa Sikora, Fernanda Hoefel,
Heloisa Callegaro, Holly Briedis, Jean-Baptiste Coumau, Jennifer Schmidt, Jihye Lee, Kanika Kalra, Kapil Joshi, Karsten Lafrenz,
Marie Strawczynski, Martine Drageset, Matthias Heinz, Nicola Montenegri, Oliver Ehrlich, Peter Stumpner, Raj Shah, Ray Liu,
Rebeca Vega, Sara Kappelmark, Sophie Marchessou, Susan Nolen Foushee, Thomas Tochtermann, Tom Skiles, Vorah Shin, and
Younghoon Kang. We’d also thank David Honigmann, 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 for her creative input and direction into this State of Fashion report,
Ellen Rutt for the cover illustration and Getty Images for supplying imagery to bring the findings to life.
9
EXECUTIVE SUMMARY
In Troubled Times,
Fortune Favours the
Big and the Bold
The State of Fashion 2020
Fashion leaders are not looking forward to Global Fashion Index (MGFI) forecasts that global
2020. The prevailing mood among respondents to fashion industry growth will slow further — down
our executive survey is one of anxiety and concern. to 3 to 4 percent — slightly below predicted growth
In contrast to last year, when there were pockets for 2019. Fashion players are under pressure to be
of optimism in North America and within the digital-first and fully leverage new technologies,
luxury segment, we now see pessimism across all to improve diversity across their assortments and
geographies and price points. To make matters organisations and to address growing demand
more complicated, although we know that external for the industry to face the sustainability agenda
shocks will continue, we don’t know what form head-on.
they will take. Yet not all companies are created equal.
Even without the economic headwinds, Polarisation persists and the “Super Winners” —
these would be challenging times. The McKinsey the top 20 players by economic profit — account
10
Executive Summary
for more than the combined economic profit of the To better address consumer themes next
entire industry. Not only are they highly value-cre- year, fashion players should focus on clearly
ating and of immense scale, but they often pioneer understanding how to best use new social media
innovation in the industry through their product channels and functions, how to optimise their
ranges and interaction with consumers. They store networks and experience, and how to best
are also best positioned to attract the industry’s deliver industry change toward greater sustain-
limited resources and talent, while others risk ability. Both R&D and innovation will play vital
getting left behind. A growing proportion of roles in delivering short-term sustainability
publicly traded fashion companies are actually targets and in reinventing fashion’s economic
“value destroyers” that rack-up negative economic model for longer term transformation. Consumers
profit. In a “winner takes all” market, the implica- and employees will continue to demand more from
tions for laggards are troubling. purpose-driven companies that champion their
values — from climate change consciousness to
Successful companies will diversity and inclusion.
be the ones that make moves Nonetheless, threats remain for
incumbents across the industry who don’t
early, focus on boosting earnings respond or adapt fast enough. Facilitated by
over revenue growth, and work e-commerce marketplaces linking them direct
out how to improve productivity to global consumers, Asian players will intensify
their competition with western brands through
while ensuring operational and cross-border channels. Meanwhile, digital pure
financial flexibility. players that pioneer new business models may
prove exciting as new paths to profitability emerge,
Volatility is here to stay, so fashion but other tech players will begin to falter. And as
companies should take steps to become more industry-wide digitisation progresses, the need
resilient, build a profound understanding of the for reinvention has even reached showrooms and
risks they face and consider strategic actions to trade fairs.
minimise them. Successful companies will be the While 2020 is not expected to be easy, it
ones that make moves early, focus on boosting will be significantly more challenging for some
earnings over revenue growth, and work out how to companies than for others. Indeed, the year
improve productivity while ensuring operational ahead will require fashion companies to deliver
and financial flexibility. Crucially, all this will meaningful change across the value chain and on
require leaders who make quick decisions in an multiple fronts while mitigating risk and managing
environment of great uncertainty. uncertainty. But, for the fortunate few, there will
The good news is that for companies that do also be opportunities to capture.
display resilience and resolve, additional rewards
are there for the taking beyond 2020. While China
continues to present a lucrative opportunity
for many global and local fashion players, some
companies are at risk of becoming over-reliant on
the market. We see further potential to explore
markets beyond China, including India, Southeast
Asia, the Middle East and Russia.
11
INDUSTRY OUTLOOK
The fashion industry faces a worrying year consumer sentiment weakens. On the other side of
The State of Fashion 2020
ahead. The macroeconomic context is challenging, the world, mature Europe continues to suffer from
and players will find that their route to value the general global economic malaise and ongoing
creation is either unclear or it requires levels of uncertainty around Brexit. Growth in emerging
investment that are hard to swallow. Digitisation Europe, Latin America, the Middle East and Africa
remains critical, while players must address is expected to remain stable overall with some
increasing consumer concerns over sustainability, brighter spots, such as Brazil and Nigeria — two of
if they want to secure their future. the most populous nations in the world that have
Overall, the McKinsey Global Fashion rapidly expanding middle classes.
Index predicts that the fashion industry will
continue to grow at 3 to 4 percent in 2020, slightly The most optimistic region is
slower than the 3.5 to 4.5 percent estimate for Asia, although, even here only 14
2019 (see Exhibit 19). This slowdown will stem
from consumers being increasingly cautious amid percent of executives expect an
broader macroeconomic uncertainty, political improvement in conditions.
upheaval across the globe and the continued threat
of trade wars. This year has already been tough, Naturally, this uncertainty is reflected in
and economic gains continue to flow to a select our annual BoF-McKinsey senior executive survey.
small group of players, while the middle is increas- Strikingly, only 9 percent of respondents think
ingly squeezed and the share of companies actively conditions for the industry will improve next year,
destroying value grows. compared to 49 percent who said the same last
In North America, consumer sentiment is year. “Challenging,” “uncertain” and “disruptive”
muted and tariffs — aided by the strengthening were the most frequently used words to describe
dollar — are impacting both imports and exports. the industry compared to last year’s more
Emerging Asia-Pacific markets are still relatively neutral “changing,” “digital” and “fast.” Another
strong although growth is slowing: retail sales divergence from previous years is that now
in the region have been falling short of expecta- pessimism holds broadly true regardless of region
tions, and will continue to disappoint in 2020 as or segment, with more than half of respondents
12
Exhibit 1:
Premium/luxury 57 31 12
Mid-market 58 39 3
Value 58 38 4
BY GEOGRAPHY
North America 61 30 9
Europe 55 38 7
Asia 59 27 14
Exhibit 2:
Caution Ahead 50
Digital Landgrab 49
Getting Woke 44
Self-Disrupt 43
Now or Never 36
Trade 2.0 34
Radical Transparency 16
On Demand 15
End of Ownership 12
Indian Ascent 4
13
Industry Outlook
year’s themes and ranked second and third in the Woke” theme, which suggested that consumer
challenges facing the industry next year. Beyond demand for “wokewear” would have a major impact
the economic context, the digitally-focused on fashion players.
themes “Digital Landgrab” and “Now Or Never” Alongside sustainability and digitisation,
both resonated most with global industry leaders the third major opportunity for the industry next
— there is no doubt that digital remains at the year, as cited by our survey respondents, was
forefront of executives’ minds. The word itself innovation. No wonder then, given the investment
was the fourth most popular to describe the needed to meet these challenges, that small and
industry, while digitisation was listed as one of medium-sized players are particularly nervous
the top three opportunities. about what lies ahead. This is particularly acute in
luxury, where the world’s biggest groups continue
What is clear is that setting a to increase their market share.
Our ten defining themes for 2020 are a
course through the turbulence sharp evolution from previous years, with the
ahead, now more than ever, risks closer at hand and more severe. What is clear
requires companies to be attuned is that setting a course through the turbulence
ahead, now more than ever, requires companies to
to their environment and agile in be attuned to their environment and agile in their
their responses. responses. While the winners at the top maintain
their industry dominance, the rest will have to
For the first time, sustainability topped the work even harder to keep pace.
list of the biggest challenges facing the industry,
and it was also named the biggest opportunity;
the rise of Extinction Rebellion and the demon-
strated ability of Greta Thunberg to mobilise
her generation make this ever-more relevant.
14
15
The State of
GLOBAL ECONOMY CONSUMER SHIFTS
Continued caution China will continue As traditional Consumer demand The global fashion
is advised for the to provide exciting engagement for convenience industry is extremely
year ahead as opportunities and models struggle on and immediacy is energy-consuming,
mounting underlying play a leading role established social prompting retailers polluting and wasteful.
turmoil could disrupt in the global fashion media platforms, to complement Despite some modest
relations among industry, but the fashion players will existing brick-and- progress, fashion
The State of Fashion 2020
both developed and colossal market is need to rethink their mortar networks with hasn’t yet taken
emerging market proving harder to strategy and find smaller format stores its environmental
economies. Indicators crack than brands ways to maximise that meet customers responsibilities
of recession risk are anticipated. As some their return on wherever they are and seriously enough.
spurring companies successful players marketing spend. reduce friction in the Next year, fashion
across industries become over-reliant Attention-grabbing customer journey. players need to
to build a resiliency on China and others content will be key, The winning formula swap platitudes and
playbook and plan struggle, companies deployed on the will feature in-store promotional noise for
for other macro risks should consider right platform for experiences and meaningful action and
such as geopolitical spreading their risk each market, using localised assortments regulatory compliance
instability and the by expanding to persuasive calls-to- in neighbourhoods while facing up to
inflammation of trade other high-growth action and, wherever and suburbs beyond consumer demand
tensions. geographies. possible, a seamless the main shopping for transformational
link to checkout. thoroughfares. change.
49
% 55%
2019
9
2020
2.3x
2025 Forecast
70
The percentage of The population of More than two-thirds of More than half of fashion Survey respondents
survey respondents that consumers aged 30 or fashion players believe executives believe a stated that “sustainability”
expect global economic below in five identified “increased exploration “localised brick-and- will be both the single
conditions to improve in exciting markets of spend on new media mortar-experience” will biggest challenge
the next year has fallen outside of China will platforms vs. ‘traditional’ be a top theme in the and the single biggest
from 49 percent for 2019 grow to be more than platforms” will be a top coming year opportunity for the
to 9 percent for 2020 double that of China theme in the coming year industry in 2020
by 2025
16
Fashion 2020
FASHION SYSTEM
Fashion brands are Consumers and Established fashion Traditional trade Valuations of digital
exploring alternatives employees are putting brands and retailers shows must respond fashion players have
to today’s standard increasing pressure will face growing to the increase of reached dizzying
materials, with key on fashion companies competition from new direct-to-consumer levels and, despite a
players focused on to become proactive Asian challengers, activity, shorter fashion slew of high-profile
more sustainable advocates of diversity as manufacturers cycles and digitisation IPOs and private
substitutes that and inclusion. and SMEs step out of by embracing new firms achieving
include recently More companies their traditional roles roles and fine-tuning unicorn status,
rediscovered and will elevate diversity and sell directly to their target audience. investor sentiment
re-engineered and inclusion as global consumers. In a bid to differentiate is taking a turn for
old favourites as a higher priority, Expect greater themselves — or even the worse. Investor
well as high-tech embed it across competition from just to survive — more apprehension is
materials that deliver the organisation hitherto unknown of these events will growing over the
on aesthetics and and hire dedicated players in the Asian add B2C attractions or path to profitability
function. We expect leadership roles, but supply chain who launch new services for some digital
R&D to increasingly companies’ initiatives design popular items and experiences to players, from online
focus on materials will also come under to sell at affordable improve relationships pure play retailers
science for new increasing scrutiny prices using cross- with their traditional and marketplaces,
fibres, textiles, in terms of sincerity border e-commerce B2B audience. to direct-to-consumer
finishes and other and results. platforms. brands and other
material innovations digital-first business
to be used at scale. models.
67%
37% -27%
The percentage of Across fashion Year-on-year growth in The trade show of the The average fashion-
respondents that companies there APAC cross-border B2C future will need to be tech IPO of the past two
think using innovative are seven male chief e-commerce transaction highly digital, rethink its years has seen a 27%
sustainable materials executives for every one value is 37 percent target audience and bring decrease in its stock
is important for their female chief executive fresh trends and ideas price since going public
company from the industry to the
forefront
17
The State of Fashion 2020
18
GLOBAL
ECONOMY
01. ON HIGH ALERT
The global economy is under pressure, with Trade tensions and Brexit continue to
political and geopolitical instability complicating create significant uncertainty and are having a
the outlook for the global fashion industry in 2020. quantifiable impact on growth. The US-China
But this uncertainty is not limited to fashion. trade war has led to billions of dollars of tariffs
Executives from across industries are increas- being imposed on imported goods between the two
ingly pessimistic, and central banks around the countries, with knock on implications around the
world are taking action and loosening monetary globe. The IMF stated in July that reducing trade
policy. Against this gloomy backdrop, the fashion tensions and resolving uncertainty around trade
industry is already facing major challenges, agreements is a vital part of putting global growth
from sustainability issues to generational shifts, on a stronger footing.1
many of which require investment at a time when
top-line revenues are potentially under threat. 55 percent of respondents in the
In 2020, fashion players will need to ensure they
BoF-McKinsey annual executive
are suitably resilient — driving productivity gains
while creating operational flexibility, digitising survey expect conditions for the
where most appropriate, divesting non-core assets industry to worsen in the next year.
to free up cash, and carefully monitoring and
managing a wide range of risks. The overall numbers are bleak. The WTO
Last year, we reported on the deteriorating more than halved its global trade volume growth
outlook for the global economy. Since then, the forecast for 2019 to 1.2 percent and warned that
situation has only worsened. No surprise then that the 2.7 percent growth it predicts for 2020
55 percent of respondents in the BoF-McKinsey is still dependent on a return to “more normal
annual executive survey expect conditions for the trade relations.”2
industry to worsen in the next year, up consid- Every region faces challenges. In Europe,
erably from 42 percent last year. And of those the UK service sector contracted in September,
55 percent, half expect conditions to be “much” while the annualised output of the German
worse, compared to just a handful of respondents economy was the lowest in six years. Meanwhile,
last year. Chinese GDP growth slowed to 6 percent in the
19
Global Economy
third quarter of this year, and September’s export These concerns are already affecting
figures were 3.2 percent lower than a year earlier, business decisions. In October, WTO Director-
and nearly 22 percent lower to the US.3 General Roberto Azevêdo said, “Trade conflicts
In the US, service-sector growth hit a heighten uncertainty, which is leading some
three-year low at the start of October and for businesses to delay… productivity-enhancing
the first time since the financial crisis, yields on investments.”5 In the UK, Bank of England
short-term US bonds eclipsed long-term bond research showed that uncertainty over leaving the
yields in August, a closely followed recession EU has reduced capital spending on average by
indicator, which suggested investors were about 11 percent,6 while the number of companies
scrambling for safer assets. including Brexit warnings in their annual report
Japan’s exports have been falling every has more than doubled in the past six months.7
month since the start of the year, Brazil’s Political upheavals in regions from Asia to
government halved its growth forecast for 2019 Latin America are adding to the uncertainty and
to just 0.8 percent in July, and India’s economy is pessimism. The long-running protests in Hong
growing at its slowest pace in the past six years. Kong have had a significant impact on the economy,
Faced with this synchronised global with Greater China retail sales significantly
downturn, central banks from the US to Australia missing estimates and tourism from mainland
The State of Fashion 2020
are cutting interest rates, and the European China down 42 percent. Elsewhere, tensions in the
Central Bank announced its biggest stimulus Middle East and attacks on oil plants are affecting
package in three years. In China, the People’s oil prices, which can have a major ripple effect
Bank cut its reserve requirement ratio (the amount around the world.
cash lenders must retain on their balance sheets) The fashion industry must tackle these
for the third time this year in an attempt to existential challenges at a time when it faces
stimulate growth. significant internal issues of its own. The drive for
sustainability is pushing many to rethink business
Japan’s exports have been falling models and move towards more responsible
every month since the start of the business practices. Customers’ demand for new and
enhanced services is driving brands and retailers
year, Brazil’s government halved to invest heavily to meet these needs even at a time
its growth forecast for 2019 to when more than half of fashion executives feel they
just 0.8 percent in July, and India’s do not sufficiently understand Generation Z — now
the largest global customer cohort.
economy is growing at its slowest The strain is starting to show. In
pace in the past six years. September, vacancies in US shopping malls hit
an eight-year high, with Sears, Victoria’s Secret
Business leaders are understandably wary. and Charlotte Russe among the household names
In just six months, the number of executives who shutting outlets across the country. In the same
think the global economy will shrink has risen month, Forever 21 joined a growing list of brick-
from less than half to over two-thirds. Three- and-mortar players who have filed for bankruptcy
quarters think global economic conditions are across different markets including Debenhams,
worse than six months ago and three-quarters the US arms of Roberto Cavalli and Diesel, and
rank trade conflicts as one of the biggest risks to department store Barneys New York. Retail is
global economic growth over the next year.4 the only sector in the US that has seen net job
20
01. On High Alert
losses over the past two years, while in the UK, prepared. This is likely to involve plans to boost
high street store closures are the highest since productivity while ensuring operational flexibility
monitoring began in 2010.8 In Europe, Moody’s (e.g., using variable contracts and more diverse
expects more than 40 percent of the retailers it supply sources), a clear approach to digitisation
rates to record lower profits in 2019 than in either and a sharp focus on financial flexibility. This
of the previous two years.9 Even in China, clothing means divesting non-core and under-performing
sales fell in April for the first time since 2009.10 assets early so that the company has the cash on
hand to make strategic investments as soon as the
Throughout the year ahead, economic outlook improves — when their peers
might be shedding assets. Crucially, all this will
fashion companies should remain require enhanced leadership to be able to make
on high alert. The most forward- quick decisions amid a high degree of uncertainty.
thinking players will therefore
Exhibit 3:
develop a resilience playbook to
ensure they are prepared. Executives are becoming
increasingly pessimistic about
Given the worrying outlook we expect global economic growth
fashion companies to take steps to become more
resilient in 2020. The first step is to develop a deep GLOBAL ECONOMIC GROWTH EXPECTATIONS FOR THE
understanding of the risks they face. These can NEXT SIX MONTHS, % OF EXECUTIVE RESPONDENTS1
develop a resilience playbook to ensure they are SOURCE: ECONOMIC CONDITIONS SNAPSHOT, SEPTEMBER 2019, MCKINSEY
GLOBAL SURVEY RESULTS
21
The State of Fashion 2020
22
02. BEYOND CHINA
Fashion brands have long targeted China Still, not everyone has been so successful.
as an outstanding growth opportunity. And rightly Asos and New Look are recent examples among
so. Over the past 10 years, China accounted for 38 those to have retreated. Dolce & Gabbana and
percent of global fashion industry growth across Burberry are among players that have been in
segments.12 Since 2012 it has been responsible the press due to advertising campaigns that
for an impressive 70 percent of expansion in the mismatched the sentiment of Chinese consumers.
A pedestrian at the Trang Tien Plaza luxury shopping centre in Hanoi, Vietnam. Maika Elan/Bloomberg via Getty Images
luxury segment, and we expect this dominance to Some international mass-market brands
continue out to 2025. have struggled to compete against established
Indeed, some brands have been very Chinese brick-and-mortar players, some of which
successful in China. Luxury players such as LVMH have thousands of outlets. Physical retail still
and Gucci have already been in the market for plays an important role — 85 percent of shoppers
years, having first opened stores in the 1990s.13 engage with both online and offline touchpoints,
Both continue to see positive results; LVMH compared with 80 percent in 2017.19 Local Chinese
saw “unheard of growth rates” in 2019, while high-street brands such as Urban Revivo and
in February, Kering defied market concerns of Peacebird have been growing at pace in the region,
a China slowdown in luxury, with Jean-Marc ramping up competition for foreign brands.
Duplaix, the group’s financial director, high-
lighting the “dynamic” sales from their Chinese Physical retail still plays an
clientele.14 15 Other international brands also important role — 85 percent of
continue to perform well — Lululemon grew
China revenues by 68 percent in the second
shoppers engage with both online
quarter of 2019, while Nike and Uniqlo reported and offline touchpoints, compared
strong demand.16 Mass-market players have also with 80 percent in 2017.
prioritised China as a core part of their business
models; China now accounts for 5 percent of The bottom line? The path to success
H&M’s global revenues,17 while Inditex has over in China can be elusive. Nonetheless, despite a
600 stores across the country, making up over slowdown of economic growth, the official growth
8 percent of its store network.18 forecast of 6 percent to 6.5 percent for 2019 is still
23
Global Economy
among the highest of major global economies, and Indonesia is the fourth largest country in the world
the region this year (2019) overtook the US as the by population.27 Vietnam and the Philippines are
largest fashion market in the world.20 Consumer- seeing rapid GDP growth. Across Southeast Asia,
driven consumption is still fast growing, in the median age is just 29, against 37 in China, high-
a country that adds absolute gross domestic lighting the potential for growth as large numbers
product (GDP) equivalent to that of the entirety of of young people enter the workforce each year.28
Australia to its economy each year. Furthermore, As in China, demand is being driven by digitally
as incomes rise, Chinese consumers show a strong native consumers, excited by the possibility of
propensity to trade up, which on the whole is good creativity and self-expression. It is worth high-
news for upmarket foreign brands. Yet, winning in lighting that these countries are highly diverse;
China cannot be the sole focus, and it makes sense some consumers in the Philippines have a high
for brands to direct at least some of their attention affinity for western fashion trends, while Indonesia
toward other smaller, yet high growth markets. is due to be the largest modest fashion market in
India continues to present an exciting the world. Given the wide spectrum of taste within
opportunity, as we highlighted in last year’s each country and the differences in regulation
report (“Indian Ascent”), particularly for price between countries, each of these markets alone can
competitive players. While GDP growth this year lend themselves as part of a considered expansion
The State of Fashion 2020
has been somewhat weaker than expected, in strategy for success at scale. Equally, brands can
part due to regulatory uncertainty, India is still explore a regional approach to establish a toehold
projected to be the fastest-growing major economy, and gain from the regional economy of scale.
according to the IMF.21 The Indian clothing market Russia is an interesting proposition;
will be worth $53.7 billion in 2020, making it the distracted by headlines about geopolitics in recent
sixth largest globally.22 years, the country’s fashion sector has remained
largely ignored by international fashion media.
Indonesia is due to be the largest Yet Russia’s clothing market is worth close to
modest fashion market in the world. $30 billion annually and is the ninth largest in
the world, according to data from McKinsey
Notwithstanding the market’s challenges, FashionScope. Despite recent economic slowdown
international players from H&M to Adidas are in the country, the luxury market is showing new
engaging with India enthusiastically.23 Internet signs of stabilisation. In 2018, LVMH, Dior and
retailing accounted for nearly 11 percent of the Tiffany all reported the highest sales in the region
apparel market in 2018, double the proportion since 2014.29 An increasingly budget-conscious
just three years prior, driven in part by increasing middle class is creating new opportunities for
internet and smartphone penetration.24 25 In fact, price competitive players. Russians have embraced
India saw the strongest absolute growth globally e-commerce too, which grew at an impressive 26
in the number of internet users in the past year.26 percent year-on-year in the first half of 2019.30
Social media use is expanding at around 25 percent The attractiveness of the country is also being
annually, with nearly 70 percent of users active boosted by growing numbers of Chinese tourists,
on Instagram. This is providing a platform to who are expected to spend US $1.1 billion in Russia
introduce consumers to fashion brands away from in 2019.31
the dominant informal market. Elsewhere, Brazil has been overlooked by
Southeast Asia also provides significant many in recent years, amid see-sawing economic
opportunities; at nearly 270 million people, growth in the world’s sixth most populous
24
02. Beyond China
country.32 Still, McKinsey’s 2019 Global Sentiment companies continuing to seize opportunities and
Survey highlights increased confidence among grapple with complexities there. Those that get it
Brazilian consumers. Tariffs are a challenge right will prosper. But successful players
— Brazil has 23.3 percent tariffs for textiles, and struggling players alike will do well to
according to the World Trade Organisation, but remember there are also opportunities elsewhere.
there are still opportunities.33 “More and more As fashion players put themselves to test in these
international brands are looking to enter Brazil,” growth markets, they will have to strengthen their
says Christoph Barchewitz, co-chief executive of brands and upgrade their operations to be able to
emerging markets e-commerce platform Global create value.
Fashion Group, which operates the Latin American
Exhibit 4:
fashion e-commerce site Dafiti. “We recently
supported Ralph Lauren and Banana Republic There is a large market of young
launching [digitally] into the market, and are
speaking to others.”
consumers “Beyond China,” more
Finally, the Middle East still has potential, than double the size of that in China
despite being an already well-established fashion
POPULATION AGED 30 OR BELOW, MILLIONS
market with a strong mall culture. While the Gulf 2025 FORECAST
countries are far smaller than China in terms of
population size, the propensity of its shoppers to
UAE & Saudi Arabia Russia Brazil Southeast Asia India
spend big is what gives the region an outsized role
among international markets. In fact, the average
consumer in the UAE and Saudi Arabia respec-
1,208
tively spends over 6 times and 2 times as much
on fashion as the average consumer in China.34
Some 99 percent of the UAE population uses social
media, underscoring the presence of a connected,
aspirational population craving style inspiration 2.3X
and global fashion. The model in the Middle
East is different given historical restrictions on
foreign ownership: international fashion players
habitually partner with established and tried-and-
517
tested local players, the likes of whom have worked
with brands from Louis Vuitton to H&M for years.
These include Alshaya, Al Tayer and Chalhoub.
One largely untapped opportunity for overseas
brands to explore is how to better serve the region
in terms of e-commerce, given many franchisees
don’t own brands’ digital rights.
As fashion players continue to find the right
formula for China, other international markets CHINA “BEYOND CHINA”
provide a rich seam of potential. That’s not to say
that China’s fashion market is nearing saturation.
SOURCE: UNITED NATIONS, POPULATION DIVISION, WORLD POPULATION
Far from it. In 2020 we expect to see many PROSPECTS 2019
25
In-Depth
Although luxury players continue to opposed to China’s near-32 percent.38 Still, the
expand or operate in most of the largest cities three largest e-commerce players in the region
in this diverse and dynamic region, there are — Lazada, Shopee and Tokopedia — together saw
other opportunities for fashion players beyond their gross merchandise value multiply seven
those serving the affluent of Southeast Asia. An times between 2015 and 2018.39 These players
emerging middle class experiencing rising levels boast international brands from Adidas and
of disposable income is developing a taste for Levi’s, to The Body Shop and Maybelline, echoing
fashion brands away from the informal market and Taobao’s path in China.
it is this demographic that is set to drive growth
in the region’s $50 billion apparel sector across Some 40 percent of the population
the six core markets — Vietnam, the Philippines,
Indonesia, Malaysia, Thailand and Singapore.35
is under the age of 25, compared
These markets are vibrant, increasingly with 28 percent in China and 30
driven by young digitally sophisticated consumers. percent in the US.
Some 40 percent of the population is under the
age of 25, compared with 28 percent in China and While there are similarities across these
30 percent in the US.36 Internet penetration is 63 Southeast Asian markets that sit within the
percent, compared with 57 percent in China, and ASEAN trade bloc and thus operate on principles
social media use is growing fast; the number of of intra-regional free trade, there are also
social media users in the region grew from 360 significant differences, in part due to regulation
million to 402 million in just a year.37 and local tastes. Vietnam, for example, recently
With young people spending increasing signed a new trade agreement (EVFTA) with the
amounts of time online, e-commerce is also EU and boasts the highest levels of foreign direct
growing, albeit from a relatively low base. Within investment in the region. Thailand is encouraging
the fashion sector, just 6 percent of 2018 retail foreign investment with tax breaks, aiming to take
spend in the region was via e-commerce, as advantage of the recent trade tensions between
26
02. Beyond China
27
In-Depth
Although Russia — the world’s ninth largest for money: 57 percent often shop around to get
The State of Fashion 2020
apparel market — has started to show some signs the best deals on their preferred labels. Less
of recovery, the economic slowdown that began expensive retailers that can simultaneously deliver
in 2014 has significantly dampened spending and “fashionable” clothing are benefiting; internation-
consumer confidence, which remains firmly in al players such as H&M and Zara have long had a
negative territory.41 Last year’s VAT increases presence in Russia and continue to open stores.
coupled with five consecutive years of stagnating Domestic retailers such as Gloria Jeans, Detskyi
real incomes have added to the burden. But even in Mir, Tvoe and Melon Fashion Group are also
this challenging environment, there are opportu- seizing the opportunity. Sales at Tvoe, for example,
nities for fashion players in certain categories. have shot up by 161 percent since the beginning
of 2019, while Melon Fashion Group has outlined
24 percent growth plans, driven by new store
The depreciating rouble has
openings, relocations and the expansion of existing
made Russia more attractive sites along with an increase in online sales.
for fashion-seeking tourists, At the other end of the spectrum, several
luxury brands saw their highest revenue in at least
particularly from China.
four years in 2018, including Chanel, Dior, Tiffany
& Co and Bulgari.42 Russia’s luxury consumers
Players who can compete on price represent have been spending more at home, while the depre-
one opportunity to appeal to consumers that ciating rouble has made Russia more attractive for
continue to move down the price ladder, while fashion-seeking tourists, particularly from China.
those catering to the luxury market — especially Chinese tourists were up almost 25 percent in the
foreign tourists — are another. The third lies first half of 2019 from the previous year and collec-
in e-commerce, a sector that continues to grow tively, are expected to spend more than $1.1 billion
rapidly and is seeing a great deal of change. in total this year.43 The Russian government has
In 2019, Russia’s budget-conscious fashion also introduced a series of targeted policies, from
consumers are increasingly looking for value VAT refunds to relaxed visa requirements.
28
02. Beyond China
Luxury retailers have moved to ensure brands and for players who are price competitive.
their prices are competitive with those in Europe; Delivering great value apparel with a high degree
in 2015, Tsum became the first retailer in Russia of fashionability will be an increasingly winning
to actively move towards matching prices in Milan formula for many. Promotions are dominant;
and Paris. It also offered Chinese-speaking sales international players should explore pricing
staff and Chinese language in-store signage and levers, either at a mass-level or by taking a more
in 2018, became the first major Russian retailer personalised approach through customer value
to accept WeChat Pay, making transactions even maximisation (CVM). Luxury incumbents
easier for Chinese customers. should further focus on building loyalty with core
The third opportunity in Russia stems from consumers as well as millennials to drive growth,
the strong growth and dynamism of e-commerce. in part through understanding the increasing
Internet penetration in Russia is high and Russians importance of online as an information channel
spend an average of 6.5 hours a day on the internet. for consumers and, as such, developing their digital
In 2018, online sales accounted for more than 10 offering through online stores or partnering with
percent of all apparel sales in the market, which online multi-brands.
represents double the 5 percent share seen just Players who wish to enter Russia should
five years prior.44 Online marketplaces capture think about their options. Foreign brands
the lion’s share of online apparel sales and are may want to start with a digital presence that
expected to continue growing. introduces them to consumers before launching
a physical presence, focusing on Moscow and
St. Petersburg, which hold the lion’s share of value
In 2018, online sales accounted
in a logistically-challenging country that spans
for more than 10 percent of all 11 time zones. Some players might instead choose
apparel sales in the market, which to partner with a fast-growing local player, either
a multi-brand brick-and-mortar retailer, or an
represents double the 5 percent
online-only company. Brands may do well to build
share seen just five years prior. a local presence as part of a much larger strategy
to serve the new generation of digitally connected
Multi-national companies like Alibaba’s and “global” Russian fashion consumers, with
AliExpress and Global Fashion Group’s Lamoda fewer language and information barriers than
have done well, together with local players like ever before.
Wildberries; in August, Wildberries.ru became
The authors of this article work within McKinsey and Company’s Apparel,
Russia’s largest clothing retailer, having grown Fashion and Luxury group, serving a range of clients across Russia.
revenue 79 percent year-on-year for the first six
months of 2019. Other platforms by major groups
like Sberbank-Yandex and USM have started
to emerge, including the recently announced
AliExpress Russia joint-venture — a tie-up
between Russian internet giant Mail.ru, Russian
telecom Megafon and China’s Alibaba, with
support from Russia’s sovereign wealth fund.
These areas of growth suggest that oppor-
tunities do exist in the region, both for luxury
29
In-Depth
Annual fashion sales in the Middle East’s role as the region’s window to the fashion world,
Gulf Cooperation Council (GCC) markets amount supported by world-class malls offering a top-end
to $50 billion, reflecting the region’s significant customer experience. Tourism will continue to
financial clout. Spending in some GCC countries be an important revenue driver; the city’s Expo
is among the highest on a per capita basis globally, 2020 is billed as the “World’s Greatest Show,”
reaching approximately $500 and $1,600 per person a glittering coming together of technology, art,
in Saudi Arabia and the United Arab Emirates food and creativity that is expected to attract at
(UAE) respectively.45 Dubai is the region’s shopping least 25 million visitors.
capital, but other markets are maturing fast, with
Saudi Arabia taking a place at the top table. Spending in some countries
However, economic cycles in the GCC is among the highest on a per
countries are closely tied to global commodity
prices which brings challenges to the current
capita basis globally, reaching
climate. Oil prices are around 35 percent lower approximately $500 and $1,600
than they were in 2010-2014 — and economic per person in Saudi Arabia and the
growth is slowing. Meanwhile, lower rents are
being offset by rising labour costs, including new
United Arab Emirates respectively.
visa and administrative fees, and reduced energy
subsidies. Geopolitical events in the region pose a Elsewhere, the fashion market in Saudi
challenge too. The last few years saw a notable rise Arabia is going through some dynamic shifts.
in business closures especially in the wholesale The kingdom is the biggest and most populous
and retail sectors. country in the region and is investing heavily in
Despite its complications, the GCC presents building a thriving cultural scene to attract locals
significant opportunities for fashion players, many and visitors alike. Mega-infrastructure products
of which have operated successfully there for include Diriyah Gate, a 7.1-million-square-
years. Dubai will continue to play an important metre development, and The Red Sea Project,
30
02. Beyond China
31
The State of Fashion 2020
32
SHIFTS
CONSUMER
03. NEXT GEN SOCIAL
The collective reach of the social media The data suggests that it is time for brands
giants is staggering. Facebook reported 2.5 billion to rethink their social media strategy. Specifically,
monthly active users in September 2019, and they need to re-evaluate how to exploit existing
both Instagram and WeChat have more than a platforms more effectively, capitalise on the rise
billion users each. Yet, growth seems to be slowing of new platforms and understand how to generate
and users are spending less time on some of the direct sales through social platforms.
major platforms: in the US, average daily time on The typical route to reach a large audience
Facebook fell to 37 minutes a day from 41 minutes on existing platforms such as Instagram is to either
in 2017.47 build followers organically or borrow followers
Stagnating enthusiasm has not stopped using influencers — both these routes are starting
advertising rates and revenues rising at the big to wobble. UK cosmetics company Lush realised
platforms. According to one report, the average that its organic newsfeed content reached only
digital ad cost has risen 12 percent in two years, 6 percent of its online followers and became tired of
but digital ad expenditure rose 42 percent,48 helping fighting the platforms’ own advertising algorithms.
analysts forecast Facebook’s revenue in 2019 It decided to shut down its social media accounts to
above $69 billion at the time of writing,49 up regain ownership of its communication by relying
70 percent from 2017 and equal to all print media on brand-owned channels instead. While this may
ad spending.50 However, visits to those advertisers be an extreme step to take, it demonstrates the
on social media have risen only 11 percent.51 lengths that some brands are willing to go to try to
The challenge is that advertising overload overcome current challenges on social media.
might be hurting engagement. Global consum- While an incredible 86 percent of
er-goods giant P&G discovered that people spent companies use influencer marketing,53 the
less than two seconds on average looking at its ads engagement rate for such sponsored posts on
on mobile feeds — and that those ads appeared too Instagram dropped from 4 percent in Q1 2016 to
often. Chief brand officer Marc Pritchard explained 2.4 percent in Q1 2019.54 Facebook’s and Twitter’s
in the Wall Street Journal, “We’re trying to reduce numbers are even worse at 0.37 percent and 0.05
the amount of times we reach the same person over percent respectively. 55 The harsh reality is that it
and over again.” 52 is increasingly hard to excite and inspire audiences
33
Consumer Shifts
who are overwhelmed and overstimulated. Going that increased exploration of and spend
forward, a static image displaying a product with a on new media platforms versus more “traditional”
model or influencer will no longer cut it. Industry platforms will be crucial to their companies.
executives believe that the top trend shaping At the same time, executives are showing
the fashion industry within the next 12 months hesitation, and only 8 percent are choosing to
will be a rise in the importance of “storytelling” increase spend on TikTok, the biggest emerging
and marketing strategies that resemble media platform with more than 800 million downloads
productions.56 and a user base skewed under 30.
Creating convincing content is critical on a
The harsh reality is that it is platform like TikTok: the landing page is a constant
stream of short videos sourced globally and
increasingly hard to excite
compiled by artificial intelligence.
and inspire audiences who are This approach challenges the traditional
overwhelmed and overstimulated. view of the need to build an audience, but does
require extremely high-quality content to stand
Arnold Ma, chief executive of creative out. Not that brands always need to create this
digital agency Qumin, suggests players should content themselves. Uniqlo appealed to TikTok
move up the influencer funnel, partnering with users to upload videos of themselves wearing their
The State of Fashion 2020
individuals or other brands who truly live the favourite item from the company’s UT line.
lifestyle and can tell an authentic story, rather than The best videos appeared on monitors in Uniqlo
blindly paying popular more generic influencers to stores around the world.
promote their products. There are many other emerging social
Ralph Lauren adopted this approach when media networks, including those focused on gaming
it worked with fashion publication Highsnobiety such as Fortnite or Tencent’s mobile game Honour
for its 50th anniversary. The published advertorial of Kings, which have fast become integral to youth
followed the impact the brand had on designers, culture. Fortnite has more than 200 million users
collectors and the fashion industry from the Ivy and is free to play, but made a sizeable chunk of its
League to the streets of Brooklyn.57 $2.4 billion in revenue last year by selling avatar
Another tactic to grab consumers’ attention skins.58 Nike was quick to see the potential and
is to use social media to tap into the drop culture started selling branded skins on the platform.
typically associated with streetwear labels. In China, brands such as Mac Cosmetics, L’Oréal
Consumers’ desire to be in the know and to have and Hong Kong jeweller Chow Sang Sang have all
an exclusive product drives a large part of the partnered with Honour of Kings, which has more
purchase. Last year, for example, Burberry released than 200 million registered players of whom more
a limited-edition Ricardo Tisci T-shirt available than half are female (and women mobile gamers
only on Instagram and WeChat for 24 hours. are 79 percent more likely to make an in-app
The company used the hype around this drop to purchase).59
release more limited-edition designs available on Ultimately, all the content creation needs
social media or exclusively in its London flagship to lead to sales, and social commerce is growing
store for just 24 hours. fast. By 2023, it could account for a fifth of all
As data shows, it is getting harder to stand online sales in China — a staggering $166 billion.60
out in established social media. Fashion players Brands are cooperating with social-media
need to understand how to gain traction on newer messaging super-apps such as WeChat, livestream-
platforms. 70 percent of fashion executives believe ing platforms such as Yizhibo and Kuaishou and
34
03. Next Gen Social
social-commerce platforms such as Xiaohongshu but rather regular user generated content — any post
to introduce and sell products. from anybody could become a potential sale.
Other social media platforms have been Overall, in light of consumers’ growing
progressively incorporating commercial functions. apathy — and sometimes antipathy — towards
Pinterest has its catalogue, while Instagram traditional social media advertising models,
has evolved its checkout and augmented reality we expect fashion brands in 2020 to signifi-
functions, letting customers “try-on” Ray Ban cantly re-evaluate their strategies in a quest for
glasses or Mac lipstick. A wide range of messenger meaningful returns. This means having a deep
apps use chatbots to generate direct sales rather understanding of which platforms and networks
than just serving as a customer service channel. their target consumers are engaging with, both
Nowhere, however, is as advanced in social in terms of region and demographics. Brands will
commerce as China. start to establish content creation as a discipline
One app that may offer us a glimpse into the within their organisation, focusing on engaging
future is Douyin, TikTok’s counterpart in China. and tailored content that can work across a range
Douyin, which is extremely popular with young of channels. Brands must also be prepared
people, has just launched a game-changing in-video to exploit the new sales-orientated functions
search function through which users can zoom in on of platforms, as well as develop chatbots in
clothing, or other items in the video, and link through combination with messenger apps to generate more
to related content and even directly purchase immediate online sales.
products — all from within the app. These are not
At the time of writing, TikTok was said to be under national security review in
videos that are actively selling or promoting products, the United States.
Exhibit 5:
FACEBOOK 2,271
YOUTUBE 1,900
WHATSAPP 1,500
FB MESSENGER 1,300
WECHAT 1,083
INSTAGRAM 1,000
QQ 803
QZONE 531
DOUYIN/TIKTOK 500
SINA WEIBO 446
REDDIT 330
TWITTER 326
DOUBAN 320
BAIDU TIEBA 300
SNAPCHAT 287
VIBER 260
PINTEREST 250
LINE 194
SOURCE: HOOTSUITE/ WE ARE SOCIAL REPORTS. DATA UPDATED TO 25TH JANUARY 2019 HTTPS://DATAREPORTAL.COM/REPORTS/DIGITAL-2019-GLOBAL-DIGITAL-
OVERVIEW. EXCLUDES SKYPE AND LINKEDIN.
35
The State of Fashion 2020
36
03. Next Gen Social
by Zoe Suen
It has become abundantly clear that the Earlier this year, Facebook chief executive
future of digital connectivity lies in Asia. Mark Zuckerberg announced plans to reshape
Beyond the sheer number of “next-gen” social Facebook’s social networking apps into a
media platforms cropping up in Asia, it is the super-app, not unlike China’s WeChat, South
speed at which they evolve that stuns the average Korea’s KakaoTalk, Indonesia’s Gojek or Japan’s
marketing executive. Dozens of dynamic networks Line. More recently, Google began moving toward
mingle and collide in this region’s vast, vibrant and the super-app model through its new Spot platform
increasingly tangled ecosystem where the variety in India, which will allow businesses to create
on offer can overwhelm would-be partners and in-app experiences accessible through Google Pay
fashion brands alike. (mirroring WeChat’s mini programme function
Though tech hubs from Stockholm to Tel Aviv and Gojek’s multi-service model).
have been heralded the “next Silicon Valley,” the These and other Asian behemoths have become
“social media industry in Asia is advanced and an indispensable part of daily life across the
more competitive than [those in] other regions,” continent, but global fashion players — many of
says Hiromi Yamaguchi, a Tokyo-based senior which rely on young Asian shoppers to keep their
analyst at market research firm Euromonitor. businesses buoyant — have only begun to wake up
While growth on major social media platforms to their potential.
is slowing in western economies, the potential
looks brighter in the east. GSMA Intelligence A gap is widening between local
forecasts that in Asia Pacific the rate for unique
Guests at Hera Seoul Fashion Week 2019. Christian Vierig/Getty Images
mobile penetration will grow from 67 percent in Asian fashion players, typically
2017 to 73 percent by 2025 and that the region will fast and fluent in local platforms,
account for just over half of new mobile subscribers
globally by the same year.
and global fashion players, often
The region’s early rollout of 4G and then 5G slow to adapt and not as fluent as
networks and the mobile-first nature of consumer they need to be.
behaviour has long meant that Asia is a natural
environment for social media to flourish.
The result of these and other digital advance- Greater Fluency and Earlier Adoption Is Needed
ments is that Asia is now where the bulk of social While mobile users in the west remain
innovation is happening — so much so that Silicon tethered to their Instagram, WhatsApp and
Valley’s giants have begun to imitate their new Snapchat accounts, Asia’s local social platforms
eastern rivals. continue to optimise and pioneer new functions
37
In-Depth
at a dizzying pace, preparing to usurp screen time Vietnam), mobile users in these countries appear
from the global giants. The same can be said about to be more receptive to the unfamiliar.
the fashion companies trying to harness these “People [in Asia] don’t hold onto legacy
“next-gen” social platforms. behaviours such as using Facebook or sticking with
A gap is widening between local Asian fashion credit cards instead of mobile payment,”
players, typically fast and fluent in local platforms, says Arnold Ma, founder and chief executive
and global fashion players, often slow to adapt of Chinese digital marketing agency Qumin.
and not as fluent as they need to be. So long as this “When something new comes out, people welcome
gap remains, the former will have a marketing it with open arms.”
advantage over the latter. International fashion This explains why tech currents increas-
brands and retailers must move faster to keep up. ingly flow from the east. “The west is just seeing
successful examples and copying it,” Ma says.
“People [in Asia] don’t hold “They’re using Asia as a guinea pig.”
Staying on top of Asian social platform devel-
onto legacy behaviours such as opments is not only important to better reach
using Facebook or sticking with consumers in Asia. Brands can also apply learnings
from social media trends in Asia to their business
credit cards instead of mobile
The State of Fashion 2020
38
03. Next Gen Social
for anime lovers and gamers, but since grew into a recommendations or weight-lifting tutorials,
NASDAQ-listed company boasting over 110 million their ‘Explore’ page adapts accordingly, and
monthly active users (MAUs) watching videos immediately.
on topics from gaming and e-sports to makeup By contrast, Instagram’s ‘Explore’ page algorithm
and wardrobes. has been known to, as Refinery 29 described it, get
“out of whack.”
Xiaohongshu recently found its male-centric
equivalent in Chao, which allows users to join
A guest outside Off White, during Paris Fashion Week.
39
In-Depth
Even blogging and messaging apps are brands, but only by investing in sophisticated
becoming more tailored to reflect IRL vertical new functions.
communities and will provide brands with a unique Live streams, for all the attention they have
opportunity to communicate with shoppers, take garnered, aren’t losing steam. Singaporean Bigo
customer service to new heights and cultivate Technology’s live streaming and short video apps
vertical communities with high engagement. Likee Video and Bigo Live both ranked in Sensor
As Hike climbs the ranks in India, messaging Tower’s top ten social media apps globally in
app Telegram has drawn 300 million monthly August 2019. But users are spoilt for choice and the
users across Singapore, Thailand, the Philippines space is competitive.
as well as parts of the Middle East and Eastern Regionality is key to understanding how to
Europe, by allowing people to customise their spread a brand’s marketing spend. According
messaging experiences. The encrypted app to SimilarWeb, Middle Eastern and Southeast
(a draw for increasingly privacy-minded users in Asian audiences are partial to Bigo Live, TikTok
some of these markets) also includes a platform for and Tango, while Livza is an Indian favourite
developers, allowing anyone to build specialised and Japan loves Pococha Live. In China, YY.com,
tools and integrate services. Where retailers are Inke, Huajiao and Yizhibo are just a few of the
already using personal exchanges to build relation- contenders, while giants like Alibaba’s Taobao,
The State of Fashion 2020
ships with consumers over WeChat and WhatsApp, Tencent’s WeChat and Xiaohongshu have all
Telegram, while still quiet where global brands optimised their apps with live stream functions
are concerned, could prove integral for Southeast of their own.
Asia. British e-commerce site Asos has already set
up its own channel. “A platform where you know a
Social apps that focus on dating and women’s person has a subject-matter
empowerment are also potentially lucrative
marketing channels. Take Singapore-based Dayre, expertise through a badging system
a female-only paid blogging app and network, that is in great demand.”
aims to foster “a safe space where women could
come together to express themselves in whatever Beauty brands in particular should pay
way they choose” — a community and ethos that attention to Asian live stream opportunities. Live
could appeal to women-focused brands from stream influencer Li Jiaqi, also known as China’s
Glossier to intimates brand ThirdLove. “Lipstick Prince,” rose to fame for reportedly
Couples’ messaging apps such as Japan’s Pairs selling over 15,000 lipsticks in just 15 minutes
and South Korea’s Between are also thriving, on Taobao. But the medium is also being used by
allowing users to communicate, share media and luxury houses, from live streaming runway shows
match their schedules — a channel with potential and makeup demos (cue Burberry and Dior) to
for luxury brands looking to market Valentine’s advertising and seeding products to influencers
Day campaigns and gifting-friendly items such as and celebrities. Such platforms may cater to a
jewellery, accessories and perfume. younger demographic, but users aren’t afraid to
spend. According to Sensor Tower, Douyin and
Customised Content Meets Cutting Edge TikTok grossed $11.7 million through in-app sales
Technology of virtual coins in July 2019 alone.
Despite the move toward nichification, some One of Japan and South Korea’s favourite
big platforms that serve broader audiences will apps, Snow was launched as a Snapchat dupe
continue to perform well for fashion and beauty by Korean internet search giant Naver but has
40
03. Next Gen Social
41
In-Depth
more of a platform for other apps now,” Ma adds. and previous campaigns because the type of video
It is a similar positioning for Line, which in that works well is very different and unique to
addition to 81 million MAUs in Japan has an avid Douyin,” Ma adds.
user base in Thailand and Indonesia (amounting
to 194 million globally) and counts Fendi and “Connect with your audience
Dyptique as advertisers. Line users are likely to
stick around for its range of services from mobile
in different ways on different
payments to navigation, if not the whole package. platforms, adapt your strategy
“Line has penetrated into every corner of Japanese
[and] tactics to the user
lifestyle,” Euromonitor’s Yamaguchi says.
Yet fashion and luxury brands have so far been behaviours on various platforms
less willing to invest in ways to leverage super-apps and you will be rewarded for
like Line, South Korea’s KakaoTalk or Indonesia’s
Gojek. Most have been focusing all their efforts to your effort.”
keep up with WeChat in China. China’s colossal
size may be the justification, but that does not Though strategies will vary per platform,
The State of Fashion 2020
discount missed opportunities elsewhere using Whaley predicts that the brands who get the most
Asia’s other super-apps. out of “next-gen” social media will be the ones
Despite the domination of super-apps, the rise who see them through the eyes of everyday users.
of hyper-personalised platforms also presents “Brands are always promoting or selling, and they
fresh opportunities to reach an engaged and forget that being on social media should be a social
targeted audience. This is good news for brands, experience,” he warns.
given the rising costs of acquiring and retaining Above all, crafting an engaging brand voice is
consumers in competitive markets like China: the what ties a digital presence together, especially
cost per thousand user views (CPM) of advertise- on platforms that are new to brands. “Take a
ments placed on Tmall has increased by an average value-first approach to communication. Don’t
of 60 percent since 2017, according to McKinsey’s miss the vision of being [genuine] communities,”
‘China Digital Consumer Trends in 2019’ report. Whaley adds.
Either way, companies will be empowered Cutting-edge social platforms from Asia
to tailor their offerings and activations to their represent a lucrative opportunity in more ways
platform of choice, and each platform will acquire than one, but for fashion and beauty players to cash
a stronger purpose. “Connect with your audience in, they will need to remember to build trust and
in different ways on different platforms, adapt credibility on each platform.
your strategy [and] tactics to the user behaviours
on various platforms and you will be rewarded for
your effort,” advises Ma.
As ever, the caveat is for fashion players to
ensure that any new platforms align with the
brand’s DNA and objectives — and, wherever
possible, to create content especially for that
platform. For apps like Douyin, this means highly
engaging content in a vertical short-video format.
“Don’t use recycled videos from other channels
42
04. IN THE NEIGHBOURHOOD
43
Consumer Shifts
44
04. In the Neighbourhood
Dr. Martens has established an experimental store of artificial intelligence and machine learning
in a nineteenth-century building in the heart of to create tailored assortments for their
London’s Camden Market. In addition to its full local consumers.
range of products, the store also offers exclusive In countries where urbanisation is still
limited-edition designs, features artwork commis- a prevailing demographic trend, fashion retailers
sioned by The Specials bass player Horace Panter, are likely to take the opportunity to move into
and a space for customers to personalise their Dr. new retail space in smaller satellite cities and
Martens shoes (whether old or new). mixed-use residential complexes in the mega-city.
American fashion designer Eileen Fisher Whatever the store format or brand aesthetic,
chose to launch a hybrid retail store concept in the winning formula will be focused on
Brooklyn as a nod to the unique character of the maximising the use of these new spaces both
New York City borough. “Making Space” focuses for servicing and acquiring customers.
on innovations, ideas and experiments, and has
space dedicated to community engagement with
workshops, movie screenings, gallery shows and Exhibit 6:
neighbourhood events. Every fortnight a different
artist-in-residence is featured, and the store also Over 40 percent of survey
offers a mindfulness programme. respondents anticipate smaller
Some digitally native brands also find local format stores playing an
neighbourhoods more appealing for their flagship
stores. In the US, players such as Reformation,
increasingly important role
Everlane and Warby Parker have seen the value next year
of being where customers live and offer a physical
showroom rather than a full range of products. % OF RESPONDENTS ANTICIPATING THE CHANGE IN THE
ROLE OF STORES NEXT YEAR
Absolute footfall is less important for these
retailers as the bulk of their sales remain online.
Customers’ growing desire for convenience
and to shop close to home means that in 2020, we
expect moving into the neighbourhood to be a core Smaller
pillar of fashion retailers’ omnichannel strategy. 42
format
This means using a wide range of local store
formats that complement both flagship locations
and digital channels, and that can serve customers
where they live both for sales and returns.
These smaller, more decentralised stores
will focus on personalised service and use
design, highly focused assortments and experi- Larger
11
format
ential elements to be locally relevant. Some may
be pop-ups, some might be in new corners of
established neighbourhoods, but all will seek to
boost brand awareness and loyalty and will need
to rely on highly efficient inventory management.
Retailers will further explore the potential SOURCE: BOF-MCKINSEY STATE OF FASHION 2020 SURVEY
45
Executive Interview
Pete Nordstrom
Co-President, Nordstrom Inc.
The State of Fashion 2020
harnessing the power of the local cool young designers into the
retailer’s high-low fold, enlisting
neighbourhood. industry insiders like Jeffrey
Kalinsky and Olivia Kim to
modernise the operation.
— by Lauren Sherman Now, Nordstrom is embarking
on his most challenging concept
yet: opening a colossal full-price
women’s store on the island of
Manhattan, the most compet-
itive retail market in the US.
Central to his New York strategy
is the roll-out of smaller formats
across the city in upmarket
residential neighbourhoods like
the West Village and the Upper
East Side that will be virtually
anchored by the new Midtown
46
04. In the Neighbourhood
location. Not to be confused could bring our services to a chance to sell [customers]
with Rack, the company’s people and connect the digital something else if they’re
off-price chain, these smaller and the physical store world, returning it or changing it.
Nordstrom Local outlets don’t that would increase engagement
Are services at Nordstrom
hold inventory. Instead they are —and that would increase wallet
Local stores tailored to each
service hubs for online pickups share with customers. That, in
location?
and returns, alterations and fact, was exactly what happened
personal styling. in our LA store. In New York, for example, one
of the things we do on the Upper
With proof of concept from the So you saw an uplift when you East Side is we’ve got this stroller
three Local outlets he opened began opening the Nordstrom cleaning thing. I have a little
in Melrose, Brentwood and Locals? kid, so I get it. It turns out that’s
Downtown Los Angeles between
Yes, what we saw first was when really popular and makes sense,
2017 and 2018, Nordstrom feels
people engaged with it, we got particularly in New York where
ready for New York. At a time
quite a bit more spend, more people are walking around all
when multi-brand retail is in
wallet share from them. Then the time. I don’t know if that
major flux, the department store
it was like, how can we get more would make as much sense
veteran seems confident in the
people through? Ultimately, the [in our Melrose Avenue Local
new format as more Local stores
way we’re going to define success store] in LA, but it certainly has
are in the pipeline for both cities.
with this whole strategy is: can worked really well in New York.
Harnessing the convenience of
we gain market share? That’s [Another example is] on Melrose,
local neighbourhoods to boost
the outcome we’re looking for we have nail services. That’s not
the omnichannel experience
and it’s been just really in the unique to LA, but that’s one that
sounds sensible enough, but has
last handful of months where worked pretty well there.
Nordstrom really discovered the
we’ve moved the needle on that.
missing link in the fashion store Are there things that you have
We’ve got a fairly high degree of
network of the future? done in LA that have been
confidence that it will work in
particularly successful that
New York as well.
you’re bringing to New York?
“Physical stores make for a better online People like… the ability to
return or exchange an online
experience rather than having to ship stuff purchase, that’s a big one. One
back through the mail, [and it] creates trips of the benefits [of] Local [is that]
we take the friction out of the
to a physical store, so you get a chance to returns and the benefit to us is
we get returns back faster. If you
sell [customers] something else if they’re think about the transit time of
returning it or changing it.” mailing around returns, par-
ticularly of unworn goods, that’s
In terms of Local stores and inventory for us and, if it’s out
BoF: What was the thinking
how they drive revenue online, in the mail system somewhere
behind your strategy for the
can you tell us how that or on the road, it’s inventory we
smaller Nordstrom Local
interplay actually works? can’t sell. If it’s going to come
format?
Our experience is if we add a back, we want to get it back soon.
To do it in one place [or] a couple If we make it convenient for
physical store to a market that
places and if we get proof of people to return stuff, we get it
we’re not in, the online business
concept, then we can learn fast back sooner and it enables us to
grows by 20, 25 percent…
[and] roll it out. be able to sell it.
Physical stores make for a better
What did you learn after online experience rather than Anything else?
opening your first couple of having to ship stuff back through
The alterations [service] is a
Local outlets in LA? the mail, [and it] creates trips
big one [because] people are
What we found was that if we to a physical store, so you get
47
Executive Interview
buying a lot of stuff online and or Nordstrom Rack in LA but itive advantage that we would
a fair amount of people require then returns it to a smaller have over a pure online [player]
some kind of alteration. I think Nordstrom Local store in LA? that doesn’t have physical assets
we’re the largest employer of Can you just move it across that they can utilise in this way.
alterations tailoring people in the city, or does it need to be [It will also] make for a better
the country, because we have processed through a central customer experience.
them in every store. We also distribution centre?
‘The third place’ concept
have them in the Locals. We It kind of depends. A lot of the for retail has been around
provide that service for not only stuff that we take, if we take it for decades. How do you feel
Nordstrom purchases but if they back in a Local, we don’t keep about this in terms of both
have stuff they bought from the inventory there because your small-format stores and
other places. We charge for that we don’t really have the your large-format stores?
service and we’re good at it. inventory, but we would keep it Do you want people spending
Is it true that you allow probably in the [local market] extended periods of time
customers to drop off returns ecosystem. The idea of all this there?
of merchandise from other is utilising our local, physical
Yes, we’re keenly aware of that
retailers too? assets to be more than just
concept. Our deal’s a little
a store, but actually, to be a
Yes, I think you’d have to look bit different. I don’t think we
facilitator of moving inventory
at it in the way that a UPS store necessarily expect that people
around in an efficient way.
[operates]. It’s not that we’re are just going to be hanging out
taking back [other retailers’] at the store. However, there are
“We say, ‘embrace the
The State of Fashion 2020
returns, it’s just you’ve got to get reasons to be there and they’re
this thing mailed [so] we’ll do not just about buying a pair of
it [for you]. We’ve got all those brown box, embrace shoes. For example, what we
carriers coming through that the bag’ because the have in the women’s store is
store every day and we’ll act seven different places where you
as an intermediary to facilitate customer is coming can eat or drink. Some are bigger
your return. in and they need help or smaller than others [but]
food… is a great reason to be able
We have a clothing take-back
[service too]. If customers are and we’re there to to stick around and not have to
leave.
cleaning out their closets and provide it.”
want us to donate the clothes, How much of your thinking is
we do that. We’re learning [and] about the practical solutions
we’re nimble enough to try stuff I know you’ve recently opened
that retail can provide versus
and if it doesn’t work, we try your full-price women’s store
the fun or cool factor of the
something else and empower in Manhattan. How do you
retail experience?
our teams to come up with good envision this store interact-
ing with and feeding off the We’ve got a big culture around
ideas. It’s been a pretty fun
Local stores in New York? customer service and every
process [and] we feel like we
good comment we get is [about]
have a good understanding of It’s almost the perfect environ- a customer who came to us
what we need to do with these ment for those highly-concen- with some kind of problem or
Local outlets in New York. trated areas where literally you situation [that] we solved for
How does your inventory can move stuff around with a them. It’s not like, ‘I came in on
management system work van, and you can have stuff for the best day of my life and I was
within the same city? For customers in a matter of hours so happy, and I was going to buy
example, what happens rather than days. It’s just, again, a lipstick and I bought it. Thanks
when a customer bought the perfect marriage of physical for selling me a lipstick.’ It’s
something at one of your full assets and the digital online like, ‘Oh my God, I only had five
department store locations business, which [although] it’s minutes,’ or, ‘I forgot to pack my
like Nordstrom The Grove not unique to us, it’s a compet- shoes and I’m in New York and I
48
04. In the Neighbourhood
had to get some shoes at 10:00 at much, and the industry has [too,
night and you guys picked up the but] it’s got to score on a lot of
phone, I was able to get them.’ different levels. The greater New
York City market is the biggest
Can you give an example?
retail market in the country.
When a customer walks into We have Long Island or New
a store and they’ve got an old Jersey and the surrounding
Nordstrom bag or a brown box areas, [but] if we’re going to be a
or something, your first reaction success in Manhattan, it’s got to
as a sales person is ‘I’m going to be more [than] just the nice new
have to facilitate a return, but store in the neighbourhood. It’s
I’d rather be selling something.’ got to connect the digital and
We turn that around, we say, physical world. It’s got to serve
‘embrace the brown box, embrace more broadly [and] because
the bag’ because the customer we have these Locals — these
is coming in and they need help other places to interact with
and we’re there to provide it. Nordstrom — it allows us to
It creates a great opportunity to cover the whole island.
create a relationship, to create
an experience for a customer How does doing
that may or may not pay off in neighbourhood retail
that moment but plants the seed well in New York, for
that if I’m going to go to a store example, impact the picture
like this, Nordstrom is the best nationwide?
place to go because they’ve taken If the only thing we do by
the friction out of it. opening a physical store there
and connecting all the dots…
is make the New York market
“If we’re going to our number one market, that’s
be a success in big. That’s a lot. We can see what
the size of the prize is; we know
Manhattan, it’s got what we’re trying to achieve.
to be more [than] just Currently, our number-one
market is Los Angeles, just in
the nice new store in terms of total revenue. But if
the neighbourhood. we can fulfill the promise of
what New York has to offer in
It’s got to connect the terms of market size, then that
will be a big lift to the top line of
digital and physical our business.
world.”
This interview has been edited and condensed.
‘Embrace the brown box’ —
that’s a good motto. How does
your localisation strategy
play out in terms of the wider
company goals?
All this stuff is somewhat
new. There’s not a blueprint
for this because our business
has evolved and changed so
49
In-Depth
Industry forecasts suggest that nearly 100 drive productivity while gathering rich customer
percent of growth in the US apparel market will pathing data that is compliant with personally
be omnichannel sales in the next three years.70 identifiable information (PII) standards. These
Moreover, four in five customers shopping in stores innovations can make a big difference to associate
today browse the internet on their phones as they productivity and conversion — a client of visual-AI
go. Forward-looking brands have bought into this company Syte, for example, saw a 12 percent
reality and developed tailored digital proposi- increase in basket size after installing mirrors
tions that complement and enhance their physical combining AR-capability with technology-ena-
offerings. In September 2019, McKinsey opened an bled recommendations. They stitched in-store
outlet in the Mall of America, the largest shopping behaviour and external data sources to provide
centre in the US. The objective was simple: to targeted styling advice.
test the effectiveness of new technologies in a live
customer environment.
Here is a vision for how stores in the future
Customers using near-field communication (NFC) hotspots to access
50
04. In the Neighbourhood
51
05. SUSTAINABILITY FIRST
When it comes to the environment, the mainstream press to publications like Dana
the fashion industry’s record is well documented. Thomas’ Fashionopolis: The Price of Fast Fashion
Fashion accounts for 20 to 35 percent of and the Future of Clothes.
microplastic flows into the ocean and outweighs These activist movements are making
the carbon footprint of international flights and consumers increasingly aware of the environ-
shopping combined. 74 75 It is no wonder, then, mental impact of fashion. Some 66 percent of
that campaigners who target the industry as part respondents to a McKinsey US cohort survey
of Extinction Rebellion describe the industry’s (and 75 percent of millennial respondents) say
potential future impact as “catastrophic”.76 they consider sustainability when making a
Demand for change is being led by the young. luxury purchase.77 Still, consumers do not always
Activists such as 16-year-old Greta Thunberg back words with actions. Only a minority are
attract global headlines, bringing forward a call willing to pay more for sustainable products —
to action to address environmental sustainability, only 31 percent of Gen-Z and just 12 percent of
adding to the lexicon on the subject by using “crisis” baby boomers.78
and “emergency” over “change” and “warming.”
Thunberg says, “It’s 2019. Can we all now call it what “It’s 2019. Can we all now call it
it is: climate breakdown, climate crisis, climate
emergency, ecological breakdown, ecological crisis what it is: climate breakdown,
and ecological emergency?” More than 7.6 million climate crisis, climate emergency,
were inspired to participate in the Global Climate ecological breakdown, ecological
Strike in September.
In the fashion industry, scrutiny has crisis and ecological emergency?”
been building. Environmental protests at
London Fashion Week in September generated It is well-known that even consumers’
significant press. Commentators have been stated willingness to vote with their wallets
increasingly shedding light on the industry, from does not translate to the same degree in actual
52
05. Sustainability First
purchases of sustainable fashion. Closing this gap with a further hundred joining since then.82 83
and changing consumer behaviour is made even Brands are taking action on other
more difficult because of a lack of clear information fronts too. Many are making efforts to increase
and tools for the consumer. Consumers are unsure sustainable options for consumers, or even make
what “sustainability” means or how to identify it the new normal in the future. Zara this year
sustainable brands.79 A survey of corporate repre- pledged to use 100 percent sustainable fabrics by
sentatives across over 100 European firms shows 2025, joining H&M which earlier committed to
consumers are often swayed by misinformation or using 100 percent recycled or sustainable materials
lack of information.80 Still, as awareness has grown, by 2030, among a host of broader sustainability
so has the quest for knowledge. Internet searches commitments by the company.84 85 Adidas has
for “sustainable fashion” tripled between 2016 committed to phasing out virgin polyester by 2024.
and 2019.81 LVMH announced its own series of commitments
“Nothing is black and white, unfortu- for the environment and biodiversity during Paris
nately… It’s huge shades of green, really. That Fashion Week in September, including an Animal-
makes it very difficult because it lends itself very based Raw Materials Sourcing Charter; the
easily to greenwashing and misunderstanding… Charter among other initiatives specifies a target
that can be quite confusing for the consumer,” of 70 percent of the groups leather to be sourced in
concedes Nina Marenzi, founder and director Leather Working Group (LWG) certified tanneries,
of The Sustainable Angle, an organisation that up from 48 currently.
stages the London-based Future Fabrics Expo.
Industrial, governmental and international bodies “Nothing is black and white,
are increasingly on the front foot to close this gap
for consumers. In early 2019, ten UN organisations
unfortunately… It’s huge shades
launched the UN Alliance for Sustainable Fashion. of green, really. That makes it very
In June, France, a global leader in luxury fashion, difficult because it lends itself
introduced a ban on the destruction of unsold
fashion goods (to be implemented by 2023), with
very easily to greenwashing and
manufacturers and retailers obliged to donate, misunderstanding… that can be
reuse or recycle. The move was the first of its kind quite confusing for the consumer.”
in the world on a national level.
The German government in September There is also increasing response to
unveiled the Green Button — the world’s first consumer demand for newer business models
government sustainable textile label. The EU’s which tackle overconsumption, such as rental
Circular Economy action plan, meanwhile, aims to and resale, as predicted in last year’s report
ensure products can be repaired or recycled, with (“End of Ownership”). We expect this will
textiles as a key priority. continue, admittedly still accounting for a low
All this activity is having an impact in now share of the total market in 2020.
bringing the environmental agenda to centre-stage. Digitally native brands are taking different
At the G7 summit in August, Kering chief executive approaches. Everlane has committed to “radical
François-Henri Pinault spearheaded French transparency” through its supply chain. On its
President Emmanuel Macron’s new Fashion Pact, website it posts photographs of shop floors in its
aimed at reducing environmental impact. Mr Macron supplier factories, gives a voice to factory workers
said roughly 150 brands had joined that weekend, and shares price breakdowns.86 Reformation
53
Consumer Shifts
made its first clothes exclusively from deadstock A number of industry leaders have voiced
materials, and on its website runs the tagline their commitment to sustainable offerings across
“Being naked is the #1 most sustainable option — their product ranges, which will likely catalyse a
we’re #2.” virtuous circle of awareness, considered spending
There is movement among e-commerce and progress. Mass-market players, meanwhile,
players too. Multi-brand retailer Asos and Global are continuing to work on reducing prices of
Fashion Group’s The Iconic earlier this year sustainable options which have traditionally been
introduced search filters for recycled fabrics. priced at a premium. This will help a broader range
Farfetch’s Conscious Edit targets sustainable of consumers make more sustainable choices.88
products, and Zalando has expanded its Despite all this activity, the industry has
sustainable offering. a long way to go before achieving transformative
change. In fact, Global Fashion Agenda’s Pulse 2019
“Being naked is the #1 most Update reveals progress slowed in the past year,
with most of the industry still not engaged.89
sustainable option — we’re #2.” There remains a pervasive lack of consumer trust,
amid accusations in some quarters of fashion
While the absolute number of mass market industry greenwashing using sustainability as a
The State of Fashion 2020
products made from sustainable materials remains marketing strategy without a significant positive
low, there has been a five-fold increase over the past impact on the environment.90 One controversial
two years.87 In some corners a materials revolution activity is carbon offsetting, by which brands pay
is under way, with recycled and lab-created textiles a third party to either capture carbon or avoid
to the fore. [See next theme, Materials Revolution.] emitting, without reducing their own carbon
“There is no sustainable material, per footprint. While an important step in accelerating
se, because for everything you need a resource,” decarbonisation, the practice in isolation is viewed
says Marenzi. “It’s a matter of how [long] the by some as an excuse to take the easy route.
resource can stay in the [user] cycle, with the
least amount of impact [from] extracting and While the absolute number of
processing, with end-of-life then being as easy as
mass-market products made from
possible — going back into the soil or being used
again for another purpose.” sustainable materials remains low,
“It is very complex [but] having a much there has been a five-fold increase
more vertical, integrated supply chain approach over the past two years.
[means] you are in full control of your materials;
the more vertical you are, the more you can Regulators are set to push harder in 2020,
mitigate […] your impact on the oceans and and in some cases are already doing so. The UK’s
climate and biodiversity.” Advertising Standards Authority (ASA) warned
According to Lidewij (Li) Edelkoort, vegan fashion brand Matt & Nat over exaggeration
a trend forecaster and dean of hybrid studies of its use of recycled materials. The Norwegian
at Parsons School of Design in New York, Consumer Authority (CA) prompted H&M to
“material innovation is only one stitch in the more clearly communicate to consumers about the
complex rebirth of fashion. Slowing down, stream- pollution it creates.91 92
lining production and editing collections are the Looking ahead, we expect in 2020 to see
most important guidelines.” regulators continuing to raise standards and
54
05. Sustainability First
impose new rules and consequences. In addition, concrete (ambitious, but achievable) targets and
we anticipate the media to increasingly take a publishing roadmaps so consumers and investors
role in better educating and encouraging the can hold them to account if targets are not met.
conscious consumer. Emboldened by these forces, This would be a strong step towards one day seeing
better-informed and more confident consumers collaborative sustainability roadmaps for the
will seek out sustainable brands and develop their entire industry, providing clarity to the innovators
awareness. Apps like Good On You and Buycott and suppliers on the prerogatives for the future.
are becoming a major part of the consumer’s None of these imperatives are easy, but taken
purchasing journey, and sources like the together, they may finally tip the scale in favour
Sustainable Apparel Coalition’s HIGG index, which of making more environmentally sustainable
allows fashion players to assess their own sustaina- fashion a reality.
bility, will be available to consumers.93
Exhibit 7:
There remains a pervasive
lack of consumer trust, amid Younger generations increasingly
accusations in some quarters of
state that they will pay more
fashion industry greenwashing
for products that have the least
negative impact on the environment
using sustainability as a
marketing strategy without a % OF US CONSUMERS IN 2019 WHO WOULD PAY MORE
55
In-Depth
For more than a year, designers at Patagonia even more difficult for the average apparel brand.
have been working on a difficult problem: how However, tackling the wider problem of
to collect, sort and transform thousands of waste in the context of a more circular system
irreparable old clothes into desirable items while has become a priority for a growing number of
turning a profit. fashion companies.
In November 2019, Patagonia produced The focus reflects both the scale of the
The State of Fashion 2020
around 10,000 jackets, sweaters and bags upcycled problem and the fact that tangible and measurable
from old garments for its ReCrafted line. While the solutions are now possible. According to the
price point for the products will vary, the brand Ellen MacArthur Foundation, the global fashion
is expecting to sell the garments at a level in line industry produces about 53 million tonnes of fibre
with new items — ranging from a small bag ($27) every year. More than 70 percent of that ends up
to down jackets ($327). ReCrafted debuted at the in landfills or on bonfires. Less than one percent is
opening of the brand’s Worn Wear store in reused to make new clothes.
Boulder, Colorado.
The project turbo-charges long-stand- “It’s really hard to work with old
ing efforts by designers to upcycle old clothes
garments at various stages of use
and reduce the waste generated by the fashion
industry. Historically, such projects have largely and break down. It takes a crazy
consisted of small-scale capsule collections amount longer; it’s a much more
because working with old garments is complex and
daunting process to see a pile of
difficult to scale.
“It’s really hard to work with old garments jackets and to make something out
at various stages of use and break down,” says, of them than out of a roll of fabric.”
Patagonia’s director of corporate development,
Alex Kremer, who oversaw the ReCrafted project. It’s an environmental impact issue that
“It takes a crazy amount longer; it’s a much more consumers can easily understand, and one that
daunting process to see a pile of jackets and to make companies can demonstrate they are making
something out of them than out of a roll of fabric.” progress to tackle. Though waste reduction is by
If upcycling is a challenge for California- no means simple, it can be easier to communicate
based Patagonia, which has a long-standing track than efforts to reduce emissions or tackle water use
record of operating at the forefront of efforts in obscure parts of the supply chain.
to clean up the fashion industry, then it will be “Circularity is quite tangible,” says Sarah
56
05. Sustainability First
Needham, knowledge exchange manager at UAL, require virgin materials and, in most cases, it
London College of Fashion’s Centre for Sustainable doesn’t require cutting-edge technology either.
Fashion. “Taking steps towards recycling and At its simplest, upcycling represents relatively
encouraging the circular economy is something low-hanging fruit in fashion’s quest to reduce its
[brands] can grab hold of and make concrete steps impact; huge amounts of waste are generated
towards.” in the manufacturing process and reducing
Still, more ambitious solutions and that can be relatively easy and bring significant
higher levels of investment are needed for waste economic benefits.
reduction. Heading into 2020 fashion companies
will need to leverage new technologies and grow In spite of the growing momentum,
consumer appetite for upcycled or recycled clothes. the industry’s efforts to tackle
According to the 2019 survey of apparel
company chief procurement officers by McKinsey,
its waste problems are still at an
increasing the use of recycled fibres is one of early stage. Many of the solutions
four innovation-led disruptions likely to become currently in the works don’t go to
prevalent throughout the industry by 2025.
the root of the problem: the need
“Circularity is quite tangible, to make and consume less.
taking steps towards recycling “It’s a hierarchy,” explains Michael
and encouraging the circular Sadowski, research fellow at the World Resources
economy is something [brands] Institute. “You start with what’s in front of you and
what’s logistically and technically possible, and
can grab hold of and make then go on to focus on the hard stuff.”
concrete steps towards.” Particularly for younger brands that want
to operate in a more conscious manner, working
Signs of progress are on the horizon, with offcuts, or excess materials, is also financially
with a slew of companies already making efforts compelling. “Throwing stuff away in a landfill,
to meet near-term targets like providing training you’re also throwing away money,” says Jonathan
in sustainable and circular design to employees. Cohen, whose namesake brand is introducing a
Elsewhere, new recycling technologies and new direct-to-consumer line of upcycled garments in
business models focused on digital rental and December 2019, made from their own deadstock.
resale offer promising opportunities to extend the It’s something bigger brands are looking
life of old clothes. at too. For instance, Burberry has partnered with
In spite of the growing momentum, the luxury brand Elvis & Kresse to repurpose its leather
industry’s efforts to tackle its waste problems offcuts into handbags and other accessories.
are still at an early stage. Many of the solutions To be sure, scaling such efforts requires
currently in the works don’t go to the root of the significant adjustments to the industry’s
problem: the need to make and consume less. traditional mode of operating, swapping out the
That makes efforts to enhance the freedom of choice provided by virgin materials
long-standing practise of upcycling particular for the creative challenge presented by limited
compelling in fashion’s nascent war on waste. volumes or quirks and imperfections in the fabric
Reworking existing garments or fabrics doesn’t or offcuts available.
57
The State of Fashion 2020
58
05. Sustainability First
“You just have to disconnect from a precon- a wide variety of fibres can complicate the life
ception of an existing supply chain model and cycle of a garment. “That’s a problem that we take
really think creatively around what’s happening,” [to] the design team and say, ‘Well is there an
says Graeme Raeburn, performance director at alternative to this fabric?’ Do you know how can
London-based fashion brand Raeburn, which has we simplify it?’” says Shona Quinn, the brand’s
built a business out of reworking surplus fabrics sustainability leader.
and garments. In many ways companies like Patagonia are
There are logistical challenges too. uniquely positioned to lead such efforts because
Fashion’s sprawling and opaque supply chains of the years they have already spent working to
mean that identifying and sourcing deadstock reduce waste. The pioneering brand has a well-es-
fabrics is not always straightforward. Often times tablished take-back and resale programme already
material will sit in far-flung factories with little in place, providing the company with a sophisticat-
visibility on what is available. When Cohen made ed infrastructure to sort and process old clothes.
the decision to find ways to use his offcuts, he Even so, upcycling is far from simple.
first had to take time tracing his supply chain and When you’re dealing with waste as your raw
negotiating with his mills. “It was like starting the material, you have less control over what comes
relationship all over again with your fabric mills,” through the supply chain. A red jacket from twenty
says Cohen. years ago might be a completely different shade
from one produced two years ago, making it difficult
“I just can’t imagine that in to pair the two when constructing a new garment.
Equally, while a roll of fabric can be cut to any shape
10 years or 20 years the flaws in
the designer likes, there’s a limited amount that can
this model will be acceptable to be achieved with a size XS jacket.
people as a whole.” Despite the many challenges, Patagonia
still views upcycling as a model that others in the
Industrial design studio and innovation industry can follow — albeit one that will attract a
consultancy Alexander Taylor is planning to limited number of followers. “I just can’t imagine
launch a brand next year using leftover fabric that in 10 years or 20 years the flaws in this model
sourced from a single manufacturer in China. will be acceptable to people as a whole,” says Vincent
Simply understanding the volume and Stanley, Patagonia’s director of philosophy.
quality of materials available has proven a
laborious process that involved combing through
stacks of catalogues and physical swatches.
Upcycling complete garments is significant-
ly more challenging than upcycling fabrics.
To make it work, brands need to rethink the way
Sorting by color. Photo: Kern Ducote
59
The State of Fashion 2020
60
SYSTEM
FASHION
06. MATERIALS REVOLUTION
In the past, fibre technology and materials the use of innovative sustainable materials will be
science were confined to specialists, sports and important for their company.96
outdoor players, and the margins of the fashion Some broad areas of innovation are
industry. But no longer. Some of fashion’s biggest showing exceptional promise. Chip-containing
brands have joined the new “materials revolution,” fibres, for example, are gaining traction. Brands
characterised by rising investment, radical experi- including New Balance, VF Corporation and 3M
mentation and a growing commitment are experimenting with leather alternatives such
to sustainability. as Piñatex, which is made of pineapple leaf fibres.
Today’s spirit of innovation is reflected in These alternatives are attracting attention from
a growing lexicon of synthetic and re-engineered companies including H&M, Hugo Boss and Chanel.
fibres. Bio-fabricated leather, biodegradable Alongside these examples, a range of new ideas are
textiles, closed-loop recycling and e-textiles are being trialled that will push the envelope on both
buzzwords that are fast entering the manufactur- sustainability and functionality.
ing mainstream. Moreover, they are contributing We see three key drivers of accelerating
to an enhanced design palette and a range of new activity: shifting consumer sentiment (often
commercial opportunities.94 reflecting rising environmental awareness),
Companies around the world are set to file regulation in areas such as e-textiles and accelerat-
eight times as many fibre innovation patent applica- ing investment in research and development.
tions in 2019 as they did in 2013, based on McKinsey Consumers are prioritising the
analysis (see Exhibit 8). The sharp rise suggests fibre environment in the choices they make, and some
innovation is moving decisively from the margins people are willing to pay more for products that
to the mainstream. Industry insiders are also have less negative impact. Younger cohorts in
coming around to that view: 45 percent of apparel particular hold strong beliefs, with a third of
companies surveyed by McKinsey are looking to Generation Z (born after mid-1990s) in the US
integrate more innovative bio-based materials95 saying they will pay for sustainability compared to
and over 67 percent of sourcing executives state that around one in 10 baby boomers.97 When it comes
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Fashion System
to innovation, consumers are also keen for their and leather generated by agri-food industries.
fashion choices to reflect their digitally enhanced The company also invested in start-up Evolved By
lifestyles. Nature, which is working on creating sustainable
Secondly, lawmakers are working hard silk.101 Companies including Bolt Threads, Orange
to ensure the fashion and textile industries Fibre and Modern Meadow are developing
comply with standards expected by consumers pioneering biotechnologies that create less waste
in other aspects of their lives. As discussed in and use fewer natural resources.
Sustainability First, the EU’s Circular Economy
Package introduces ambitious targets for recycling
“There [are] a lot of clever
waste, including textile waste.98 The EU also
finances research into textile recycling. Its companies that are starting to
Trash2Cash project involves 17 partners across 10 blend materials with [bast fibres
countries, aiming to find efficient ways to separate
like] hemp, or ramie, or [flax for]
mixed fibres.99
Finally, brands around the world are linen, for example.”
reacting to rising demand for low-impact alterna-
tives that are functional or sustainable or both. “Silks and cellulose will certainly become
The State of Fashion 2020
Chinese manufacturer Huafu in March 2019 the biotech focus,” predicts Edelkoort. “Hopefully
reported a sharp rise in requests for such alterna- this will become a staple of available high-tech
tives from local brands over the previous year. materials in the future. However one needs to
“There’s a lot of clever companies that are understand that clothes-making is a deep rooted
starting to blend materials with [bast fibres like] tradition and hasn’t changed much since the
hemp, or ramie, or [flax for] linen, for example,” Bronze Age [so] developments [can] take an awful
says Nina Marenzi, founder and director of The long time.”
Sustainability Angle, an organisation that stages Elsewhere, she predicts that “the recent
the London-based Future Fabrics Expo. “These revolution of 3D printing on textiles will have a
are all blends that lend themselves really well and very big market for embellished textiles and will
lower the [environmental] impact immediately.” replace the 3D printing of clothes.”
Lidewij (Li) Edelkoort, a trend forecaster In the e-textiles area, researchers are using
and dean of hybrid studies at Parsons School of 3D printing to make materials that can harvest
Design in New York, believes that the reinvention and store electricity as well as fulfil fashion
of ancient fibres is one of the most promising demands.102 Japan’s Xenoma has gone a step
innovations. “Japan is working on a smaller scale further, developing “e-skin” that monitors fitness
with local producers at the development of nettle, and health with Printed Circuit Fabric (PCF)
ramie and mulberry paper yarns. The ideal is to technology.103 This kind of technology is likely to
make compostable clothes,” she says. be the basis of the next generation of sportswear.
A rising number of companies, meanwhile, The global smart-textile market is expected to
are working in collaboration with start-ups grow from the current $93 billion to $475 billion by
or peers. Acabada ProActiveWear and Devan 2025 (including fashion, but also other industries,
Chemicals are partnering to create products e.g., medical and military).104 Google in September
from hemp, which requires less water and fewer 2019 released its Cit-e backpack in collaboration
chemicals than cotton.100 Chanel in 2018 launched with Saint Laurent. The pack’s left strap contains a
a new strategy to research and develop materials computer that connects with an app on the owner’s
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06. Materials Revolution
phone. Users can use simple hand motions to get hire product technologists to ensure they remain
news, weather or even a selfie.105 at the cutting edge. We also expect more vertical
Some companies are reinforcing direct integration, with retailers and brands expanding
investment with indirect strategies. H&M, for in-house roles for tasks formerly assigned to the
example, is partnering with HKRITA (Hong Kong supply chain. Finally, functionality will take
Research Institute of Textiles and Apparel) to centre stage, with fibre companies working even
operate a pilot hydrothermal recycling plant in harder to reflect digitally enhanced lifestyles and
Hong Kong to recycle fibre blends.106 Blends are the changing consumer behaviours.
most common type of textile and remain largely
unrecyclable, so the project represents a major
innovation in the space. Several players are also
supporting start-ups through awards programmes
(e.g., H&M, Kering) and accelerators (e.g., Asics). Exhibit 8:
“Bigger luxury houses should have R&D
Annual patent filings in textile
and smaller brands should cooperate with them,
profiting from their scale and finance. The amount innovation are projected to increase
of companies and start-ups is still small compared 8x from 2013 to 20191
to the challenge [but] the field is too small for all
the students dreaming to work in this direction. GLOBAL FILINGS PER YEAR
[That’s] why the homemade solutions with algae,
mushrooms and fruit waste are so popular among 838
young designers,” Edelkoort says.
In addition to updating regulation,
some governments are playing a direct role
in encouraging and funding research. The
EU is set to offer €21 million ($23.5 million)
8x 583
of funding to support sustainable bio-based
textiles and circular business models.107 The US
Department of Defence-backed Fibres and Textiles
433
Manufacturing Innovation Institute is researching 410
new technologies to impregnate fibres and yarns
with integrated circuits, LEDs, solar cells and 288
other capabilities.108
The materials revolution is bringing
fundamental change both to the raw materials
of the fashion industry and the way in which 121
95
it operates. We expect over the coming year to
see more collaboration between start-ups, fibre
companies, manufacturers, fashion brands and
2013 2014 2015 2016 2017 2018E 2019F
retailers. Rather than single products or special
lines, these innovations may increasingly play out
1
BASED ON BIO-TEXTILE AND SMART-TEXTILE FILINGS; 2018 ESTIMATE AND 2019
across a company’s wider activities. Companies FORECAST GIVEN LAG IN PATENT FILING DATA AVAILABILITY
will build investment centres of excellence and SOURCE: MCKINSEY STRATEGY AND CORPORATE FINANCE (S&CF) GROWTH
ANALYTICS, BASED ON PATENT DATA
63
In-Depth
advances in omics, an umbrella term that covers to produce PHA, a polymer that is then spun
the measurement of intracellular components into thread. US-based Bolt Threads, Germany’s
such as DNA, RNA and proteins. With the ability AM Silk and Japanese textile research company
to engineer these components comes the ability Spiber have used fermentation techniques to
to edit human, plant and animal DNA in a basic engineer artificial silk proteins and fibres. Spiber
biology lab. At the same time, interest is beginning first joined forces with The North Face in 2015
to mount in studying the microbiome — microbes to develop a special Moon Parka prototype from
that live on and in the body that collectively have artificial spider silk. The parka did not make it to
more genetic material than the human genome. market, but four years later the companies created
Beyond omics and molecular technologies, the a follow-up using a new textile (Qmonos) made of
ability to “bioprint” structures with cells and grow synthetic fermented proteins.109 US-based Modern
animal or other cells in a petri dish continues to Meadow developed Zoa, a biological, lab-originated
develop. In all these areas, there are potential uses alternative to leather made from collagen protein.110
in the fashion and beauty industry. In 2018, Modern Meadow signed an agreement
In the case of DNA sequencing, falling costs with Evonik, a chemical company specialising in
have been a game changer. The cost of sequencing microbial fermentation, with a view to moving into
the first human genome was almost $3 billion; commercial production.
in 2019 it cost less than $1,000, and that could be There is also significant innovation in
shaved to less than $100 in a decade. No wonder the supply chain as companies use cutting-edge
annual venture capital for genomics has risen by a technology to create cleaner and more efficient
factor of 10 over the past decade to reach $4 billion processes. For instance, Algalife and Faber Futures
in 2018. use genetically-engineered microbes to produce
environmentally-friendly dye. Faber Futures
A new frontier for fashion textiles lab-engineered pigment producing bacteria
Numerous smaller companies are now (“coelicolor”) from which textiles take on rich
experimenting with aspects of the biological blue, purple and red tones depending on the pH
64
06. Materials Revolution
of the environment. Germany-based Algalife is establish links between gut bacteria and skin
doing similar work to engineer the DNA of algae to conditions such as acne and eczema. San Diego-
develop pigments and combat pollution caused by based Pathway Genomics provides direct-to-con-
dyeing processes. sumer DNA Tests for skin traits and procedure
Omics and molecular technologies are also options such as response to sun exposure.
being used to help companies recycle end-of-life Skincare brand Mother Dirt, a unit of AOBiome,
textiles. Los Angeles-based Ambercycle has is researching live probiotics products to restore
genetically engineered microbes to digest polymers essential skin bacteria. With the cost of microbe
from old textiles and convert them into polymers DNA sequencing falling, there is potential for
that can be spun into yarns. The company, which improved and personalised products and services
says it is “building an ecosystem for closed loop in this area. While not yet commercialised, gene
textile production,” won a €250,000 ($279,000) editing techniques could make a mark in the beauty
grant from the H&M Global Change Award in 2016. industry, enhancing interventions in areas such as
Currently, less than 1 percent of the material used hair loss and skin aging.
to produce clothing is recycled into new apparel, an Major brands are expanding their activities
annual loss estimated at $100 billion globally.111 in the beauty business, often through partnerships.
The production of textiles in a closed-loop system In 2017, Johnson & Johnson invested in probiotic
would mean that waste is fed back into the manu- cosmetics specialist S-Biomedic. In 2019, L’Oréal
facturing process and that products themselves announced a tie-up with San Francisco-based
are biodegradable. While the impact is currently uBiome to research skin microbiome (uBiome filed
limited to a few companies, it holds great potential for bankruptcy in September 2019 but this was not
to limit some of the waste produced by the apparel related to its scientific work).
industry in the future.
Going forwards, omics and molecular Looking Ahead
technologies could also play a role in smart textiles. While the pace of adoption of these
A collaboration between MIT Media Lab and New innovative technologies over the next 30 years is
Balance has made live bacteria that naturally react heavily dependent on market factors, regulation
to moisture and produce a breathable “second and consumer acceptance, we expect more partner-
skin” suit. US-based start-up Tandem Repeat is ships between large brands and start-ups, deeper
producing fibre based on squid genes. The genetic research, and increasing commercialisation of
code in the material is focused on healing, enabling these ground-breaking innovations. With rapid
garments to repair themselves. The material advances in science and new funding pouring
also acts as glue, which minimises microfibres in, developments in the biological revolution are
shredding during washing and reduces the flow of exciting and worth tracking for the fashion and
microplastics into the oceans. beauty industry. Companies that pride themselves
in being at the forefront of innovation should
Biological beauty innovations ensure they take steps to remain at the cutting edge
A recent innovation is direct-to-consum- of this exciting research with huge future potential.
er microbiome and DNA testing for personal
wellness and beauty insights. Based in Santa This work is part of a larger body of research on the biological revolution
by the McKinsey Global Institute, due for publication in spring 2020.
Clara, California, Viome offers at-home gut testing The McKinsey Global Institute is the business and economics research
and analyses the human microbiome (consisting arm of McKinsey, whose mission is to help leaders in the commercial, public
and social sectors develop a deeper understanding of the evolution of the
of hundreds of trillions of microorganisms) to global economy.
65
07. INCLUSIVE CULTURE
For many years, “diversity” in fashion Tommy Hilfiger, which used only black models
The State of Fashion 2020
meant occasionally putting a non-white face on a at its Paris launch — 59 of them, of different sizes
magazine cover. Diversity was often more about and ages. Rihanna’s diverse show for her lingerie
visual impact than being representative. Today, line Savage x Fenty was lauded by the industry as
these token nods to diversity are beginning to a riposte to competitor Victoria’s Secret long-pro-
give way to real inclusivity as the industry moves jected homogeneous view of beauty. Capsule
from eye-catching imagery towards meaningful collections are also visibly embracing diversity:
change in the workforce. This is motivated by Asos has released three collaboration collections
consumers demanding that companies’ values with GLAAD, giving the LGBTQ acceptance organ-
reflect their own, and by employees and stakehold- isation 100 percent of profits.113
ers clamouring for change.
We expect companies will start to There were more than twice as
broadcast their diversity credentials loudly and
many models of colour on the
proudly, with chief diversity and inclusion officers
becoming the rule rather than the exception. runways of the autumn 2019
Customers will keep a keen eye on whether these fashion shows as there were for
initiatives are style over substance, rewarding
spring 2015 — up from 17 percent
those who embed change throughout their organ-
isations and calling out, shaming or boycotting to almost 40 percent.
those who don’t.
In consumer-facing aspects of the business, In an industry that has often fallen
representation is finally improving. There were back on “artistic licence” to justify its choice of
more than twice as many models of colour on the homogeneous visual imagery, that is no longer an
runways of the autumn 2019 fashion shows as excuse that works. Consumers today increasingly
there were for spring 2015 — up from 17 percent express their disdain if diversity is not represented
to almost 40 percent.112 One powerful example or considered. Victoria’s Secret’s long refusal, until
was Gen-Z superstar Zendaya’s collaboration with recently, to use transgender models because,
66
07. Inclusive Culture
to quote the chief marketing officer “the show is a Anthropologie, for example, has launched
fantasy,” is one well-known example. Consumer Anthropologie in sizes from 00P to 26W, while
backlash can be swift and brutal, often resulting in Tommy Hilfiger launched a line of adaptive
changes to corporate policies. After the PR crisis clothing for children with disabilities and later
related to Gucci’s “blackface” jumper, for example, added adult apparel. With the adaptive-clothing
the brand invested $10 million into a programme market estimated to reach almost $400 billion
that aims to encourage internal diversity and by 2026, more high-street brands are launching
inclusion.114 adaptive-clothing ranges, including Zappos and
Target.117
If further motivation is needed, while
Almost two-thirds of consumers
society certainly expects greater representation
are self-proclaimed “belief-driven of difference, there is also a strong economic case
buyers” who will choose, switch, for diversity (which, as we’ll see later holds true
within companies too). In the US, for example, the
avoid or boycott a brand based on
buying power of people of colour is growing signif-
its stand on societal issues. icantly faster than that of the white population.118
The implication for fashion players is that sales
The impact of mistakes and misjudgements rise significantly as more customers feel visibly
in this area is not just felt on social media. Almost represented and aligned to the brand in terms of
two-thirds of consumers are self-proclaimed shared values.
“belief-driven buyers” who will choose, switch, However, if companies are to parade their
avoid or boycott a brand based on its stand on diversity credentials, they need to make sure they
societal issues — a statistic that holds broadly true are genuine and deep-rooted. In other words, the
across markets as diverse as China, Brazil, the US fashion industry needs to live the message, not
and Germany.115 And it’s not just what they buy, just parrot it. That means putting as much if not
it’s where they buy it: more than half of 21-to-27- more focus on the internal organisation as on their
year-olds in the US believe that retailers have a models’ skin colour.
responsibility to address wider social issues with There is substantial room for improvement.
regards to diversity.116 A New York Times article recently called out
Beyond its workforce, the ultimate visible Adidas, whose employees criticised the company
expression of a company’s commitment to for a lack of diversity when they realised that less
diversity and inclusion is its products. Challenger than 5 percent of the workforce at its US head-
brands are already launching products that cater to quarters identified as black. Nike is among others
underserved demographics, from adaptive fashion who have also now come under fire.119 “Examine
brands such as IZ Adaptive, to Good American, fashion’s underlying power structure, what you
which offers jeans in a wide range of tailored sizes; find is male, cis-gendered whitewashing,” wrote
from the growing number of modest clothing Jason Campbell in an op-ed for The Business of
brands aimed at Muslim women to trans-friendly Fashion. “Data is limited, but a close look at the
lingerie brands such as London-based Carmen executive committees at major fashion companies
Liu Lingerie. shows that they are packed with white men.”
Some incumbent brands are recognising Some companies are taking positive action.
that these companies are carving out profitable LVMH has pledged equal gender representation for
niches and are responding accordingly. executives by 2020, while Nordstrom claims it has
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Fashion System
achieved equal pay for employees of all genders and of colour to be found anywhere in the industry.
races and is close to approaching equal representa- It is evident that while there is some progress
tion. Public announcements of such initiatives may across the industry, there remain bastions where
seem self-aggrandising, but today’s belief-driven progress is slow, particularly in creative leadership,
customers look beyond the glossy imagery to decision-making and technical roles, from
decide if a brand’s values match their own. creative directors and business unit heads to chief
Some of the industry’s most recognised operating officers and chief technology officers.
players, such as Chanel, Gucci and H&M, have “If industry leaders need motivation
hired executives devoted to diversity to show beyond the moral imperative and the positive
their commitment, but employee training and impact on creativity, our research has built the
full integration across functions still lags across business case for diversity,” says Vivian Hunt
the industry. A 2019 US fashion industry report DBE, managing partner for McKinsey in the UK
revealed that only 56 percent of respondents said and Ireland. “Diversity is correlated with superior
they had taken a professional class or workshop company economic performance, a finding which
related to inclusion and diversity.120 is reinforced year-on-year.” Recent McKinsey
Making diversity the norm, rather than a research into the impact of diversity on organi-
special initiative, will ultimately have the biggest sations shows that companies ranked in the top
The State of Fashion 2020
impact on corporate culture. Consider gender and quartile for gender diversity in their executive
ethnic representation in leadership positions. teams were 21 percent more likely to have
Women are overrepresented in the industry with above-average profitability than companies in the
more than two-thirds of fashion house employees bottom quartile, but also 27 percent more likely to
being women in 2018, yet once you move up to the have industry-leading performance on longer-term
C-suite, this number drops to less than a third. value creation. For ethnic and racial diversity, top
This is still well above the global average of 14 quartile companies were 33 percent more likely to
percent, but parity seems a distant dream.121 outperform national industry peers.122 “Combining
an inclusion and diversity strategy with the core
“If industry leaders need imperatives of a business means that inclusive
leadership really does lead to inclusive growth,”
motivation beyond the moral
continues Hunt.
imperative and the positive In 2020, visible expressions and public
impact on creativity, our research statements of diversity and inclusion will be more
frequent, and companies will not be shy about
has built the business case for
sharing them. But they will also be vocal about
diversity. Diversity is correlated their broader commitment to diversity and will
with superior company economic be held to account by employees and customers.
Fashion players should articulate their own
performance, a finding which is
business case for diversity while having a clear
reinforced year-on-year.” understanding of how much better diverse teams
are across functions, from customer insight and
Similarly, there are only a handful of black product innovation, to marketing and digital.
creative directors, like Olivier Rousteing and Virgil Chief diversity officers will become more common,
Abloh, at the helm of high-profile luxury fashion better resourced and further empowered, laying
houses, and there are scant few C-suite executives out ambitious roadmaps for initiatives such as
68
07. Inclusive Culture
Model dance on the runway at the Tommy Hilfiger TommyNow fall runway show at the Apollo Theatre in New York City.
Angela Weiss/AFP/Getty Images
69
Executive Interview
Annie Wu
Global Leader for Inclusion and Diversity,
H&M Group
H&M Group’s Annie Wu reveals the After modest progress and some
high-profile failures, the fashion
challenges of delivering change after industry has begun to realise
The State of Fashion 2020
70
07. Inclusive Culture
BoF: What have been the hard what products we present to the brands and making sure that this
lessons you’ve had to learn? customers, and ‘community’ is strategy is embedded in the DNA
The hardest one has been under- the impact that we have, or hope of [each] brand, and also the goals
estimating how hard change is, to have, in the communities that that they’re trying to achieve.
and especially change in people’s we operate in.
Does the H&M Group have a
behaviours. It’s so easy to under- But how do you implement specific definition for how it
stand the topic, versus actually the strategy across such a sees diversity?
putting things into action. large company? Our definition of diversity is that
Having to change your behaviour
It takes a lot of coordination there is no definition of diversity.
is really, really hard for people.
between all the different What diversity means to you [is]
That’s why I always say that this
functions. It’s a lot of cross in your local context. If we’re
is a journey.
collaborative work. I try to talking about a more homo-
geneous society, like Sweden,
“You always have to get personal. for example, then diversity
is actually [focused more on]
When you’re talking about diversity, it can gender and not [as much] about
race. Then you go to countries
get very high-level and fluffy. But everyone like South Africa, like the US,
has experienced exclusion in their life.” like the UK, where diversity is
about race and ethnicity. So we
try to cover as many of these
What have been the most make sure the topic of inclusion perspectives as possible. There
effective ways you’ve been and diversity is embedded in are lots of different definitions
able to execute change? our processes, in our decision of diversity and we don’t want to
You always have to get personal. making, in everything that we’re stick to just one specific one.
When you’re talking about doing. [Previously], there were
So your diversity goals vary
diversity, it can get very high-lev- so many different programmes
by region?
el and fluffy. But everyone has and initiatives and policies going
on across the organisation. We Yes. Because we are present in so
experienced exclusion in their
had a global [HR] policy, we had many different markets around
life. This role is a lot [about] influ-
different countries working on the world, we want to make
encing people and their mindsets,
very different things that relate sure that this resonates with
and so making it personal to
to inclusion and diversity. We everybody in their own way. In
them has worked really well. You
also had our sustainability India, for example, we want to
also need to be super analytical
department; working on what really push women in leadership
and can get into those numbers.
[went] into their pillar of fair roles [so our] Indian teams are
Until you really have facts in
and equal [rights] for being an looking at their demographics
front of you, for a basis of deci-
employer and how we work and seeing how to [achieve this in
sion-making, it’s really hard to
with our supply chain. [So] it’s their] succession planning for the
get the message through.
really pulling all of these things coming years. In South Africa, we
What is the group’s overall together and making it intention- know that youth unemployment
diversity and inclusion al with one voice. is super high in the cities [where]
strategy look like? we have our stores [so] we really
What about delivering sought out and collaborate now
Our strategy has three pillars:
consistency in terms of with [relevant] organisations
people, business and community.
deploying the strategy across since we know that we can hire a
For ‘people’; we talk about
the group’s eight different lot of them in our store.
everyone across our entire
brands?
value chain, and that goes from Can you elaborate more on
suppliers [and] employees [to] What we’ve been doing this last
why it’s important to break
our customers. ‘Business’ is how year is meeting with each of the
this down regionally, as
we actually form our teams and managing directors of all of our
opposed to globally?
71
Executive Interview
At the end of the day, we want to So how does the H&M Group labour employment attorney.
reflect, respect and relate to our measure its progress? I worked with a lot of labour and
customers everywhere around We’ve put out some ambitions; employment issues and then
the globe. In order to do that, we one of them is 100 percent of our an opportunity came up for me
need to recognise the way that employees feel that they have an to move to the Stockholm head
someone shops or even dresses equal opportunity, and we hope office to work in our global HR
and looks at clothing [can be] to measure that through our department three years ago.
very different in South Korea employee engagement surveys. I headed our group employee
compared to Sweden, compared We’re also working right now on relations team, and that covered
to South Africa. If we don’t have community impact and percep- the inclusion and diversity
the knowledge of where those tion. We’re trying to see through piece worldwide. I assumed this
decisions are being made, then our net promoter score our position in January of last year.
we need to find it, and have them customers’ perception of who we What do you think it is about
live it. We need to understand are. Net promoter scores are also the fashion industry now that’s
culture, history and diversity very good at gauging where we finally galvanising change?
around the world. The broader stand in different markets.
we would like our customer base We understand that the
to be, the broader our products But what are some concrete customers want us to change.
also have to be. examples of company practices They want to see themselves
that ensure diverse hiring? when they go into a store. We
How do diversity initiatives used to tell the customer what
Externally, we need to look
work in terms of designing the they wanted. [Now] it’s the
broader and beyond. It could
actual product? customer telling us what they
The State of Fashion 2020
72
08. CROSS-BORDER CHALLENGERS
Asian apparel manufacturers have been in manufacturer Orolay which produced a winter coat
competition with their western counterparts for that sold on Amazon for $139. After going viral,
decades. As operational capabilities advanced across the manufacturer made $5 million of sales in one
Asia, the first stage in their evolution was from month, more than the company’s entire revenue
simple “cut, trim and make” facilities to full package for 2017.
manufacturing. The centre of gravity soon shifted When it comes to supplying global
east as Asian producers gained a greater share of the e-commerce platforms, China is the established
global market. leader. In the past three years, the share of Chinese
The next phase saw some manufacturers sellers with more than $1 million of revenues on
move up the value chain to develop in-house design Amazon rose from 23 percent to 45 percent — not
capabilities, while others started selling branded surprising given that 70 percent of vendors on
products of their own for the local market (OBM European Amazon websites are Chinese.123 In 23 of
companies). However, Asian manufacturing is now 30 European countries, the number one non-do-
ready for its final stage of metamorphosis, which mestic supplier of goods, based on most recent
will see some ambitious players compete in a whole purchase, is China.124 And we see the same kinds of
new arena. numbers playing out in fashion.
Empowered by the rise of e-commerce A significant driver of the growth of
cross-border platforms, more Asian manufacturers Asian manufacturer and SME fashion is rising
and SMEs will be able to export their goods easily consumer demand. Some of today’s consumers
and affordably, directly to shoppers. This new are less precious about brand names, and price
generation of DTC (direct-to-consumer) original is a vital consideration for many, particularly
brand manufacturers (or OBMs) represents stiff younger shoppers. An article in The Atlantic put it
competition for established fashion brands in the succinctly: “Why buy a $40 bikini made in America
global mass market. In the basics and price-entry when you can buy a $4 bikini directly from China?
segment, a few have already started offering For that matter, why buy a $20 bikini made in China
highly desirable products that create a buzz among but imported by a US company like the Gap when
fashion-conscious consumers. Take the Chinese you can buy a $4 bikini directly from China?”125
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Fashion System
Manufacturers that choose to make the marketplace.128 Alibaba also acquired Singapore-
switch to DTC can take advantage of the scale based e-commerce platform Lazada, into which
available through e-commerce, its relatively low it has injected more than $4 billion over the past
cost (compared with brand-owned websites and three years.129 Lazada, which has a presence in six
physical retail) and, to some extent, its synergy Southeast Asian markets, has built logistics and
with social media marketing. In some cases, cash-on-delivery networks from scratch.
that puts them in direct competition with more “Our vision is to drive digital transfor-
established brands and retailers. mation in Southeast Asia,” Lazada Group chief
China has worked hard to support SME executive Pierre Poignant says. “We believe by
globalisation and DTC players, for example giving [digital] access to SMEs, merchants and
through the development of dedicated distribution consumers, we can be a force for good in the
hubs. Yiwu, in Zhejiang province, for example, region.” Amazon, meanwhile, is working to expand
is a megalithic centre for wholesale trading and, its global selling programme across the region —
increasingly, e-commerce. Its International Trade for example to garment, footwear and leatherwear
City hosts around 70,000 shops and 10 million SMEs in Vietnam.
products under one roof.126 Investment has been accompanied by
a push on infrastructure and logistics, funded
The State of Fashion 2020
74
08. Cross-Border Challengers
World Trade Organisation partners in early 2019 relatively unknown companies and unbranded
launched talks to develop a predictable, effective products from Asia to take a bigger share of
and safe online environment for cross-border the market across the region and globally as
e-commerce trade. China is bolstering consumer investments begin to pay off. To stay ahead of the
protection by making platforms more liable for game, international brands need to strengthen
defective or counterfeit goods. their value proposition. In particular, those
“Platforms will make supply chains leaner competing neither on price nor on quality, must
and give consumers access to more products and think strategically about expanding their online
suppliers.” says Poignant. “This will create a bigger reach and becoming more competitive on pricing.
pool and reduce prices, which in turn will lead to
pressure on big brands.”
One platform that is paving the way in
helping SMEs and manufacturers put pressure Exhibit 10:
on established global fashion brands is Taobao,
the world’s biggest e-commerce website owned by
In three years, the share of top
Alibaba. Taobao’s marketplace facilitates consum- sellers on Amazon Marketplace
er-to-consumer sales, mainly in Chinese speaking that are based in China has doubled
regions, and has built a reputation as a proving
ground for Chinese manufacturers-turned-de- % OF SELLERS WITH OVER $1 MILLION IN REVENUE ON
signers and several successful brands (including AMAZON MARKETPLACE1 THAT ARE BASED IN CHINA
75
Executive Interview
Wang Mingqiang
General Manager, AliExpress
The State of Fashion 2020
— by Casey Hall
AliExpress, Wang Mingqiang
has been tasked with the
aggressive expansion of
Alibaba’s hitherto quiet giant,
which facilitates transactions
for consumers in almost every
country around the world.
Wang is at the forefront of a
move by the group to export the
Chinese e-commerce ecosystem,
including its vast network of
manufacturers-turned-brands,
SME suppliers and high-tech
logistics solutions to the wider
world. As it readies to go up
against global competitors
76
08. Cross-Border Challengers
like Amazon, AliExpress has This enables them to sell locally merchants to sell locally and
earmarked fashion as a key and cross-border in eligible globally, so international
category. If industry leaders markets, where consumers are consumers are able to enjoy the
outside Asia have any doubt that now able to shop a wider range of same benefits and fun experi-
Wang has global ambitions, they products and brands [and]… to ence that Chinese consumers
need only look to the platform’s provide new business opportu- enjoy on Taobao.
recent partnership with Milan nities for the fashion industry
Do the two big cross-border
Fashion Week as proof. across geographies.
platforms within Alibaba —
Tmall Global and AliExpress
“Cross-border e-commerce makes it — ever work together?
possible for companies to try different We are all an integral part of
Alibaba’s globalisation strategy
markets concurrently before they make with different focuses and
functions. For example, Tmall
further decisions to focus on certain Global is to help international
potential markets.” brands build their brand and
reach consumers in China,
whereas AliExpress helps
BoF: AliExpress held its So that move reflected the Chinese and global brands and
Starry Night event at Milan international expansion SMEs to sell outside of China.
Fashion Week in September of your seller base beyond Aside from cross-border, Tmall’s
2019. Was this a way to stake China, but your consumer Luxury Pavilion provides an
your claim in the fashion base was already very exclusive environment for
establishment? international, wasn’t it? high-end brands who want to
Our presence at Milan Fashion Where do AliExpress sellers reach Chinese consumers with a
Week reflects AliExpress’ do the most business? unique, personalised experience.
interest in the fashion industry, The top markets for AliExpress
How can companies
which is a category with are Russia, the US, Spain, France,
overcome operational
great potential. We really are Brazil, Poland, the UK, Israel,
complexities that arise from
dedicated to becoming a platform Korea and the Middle East.
concurrent online expansion
for worldwide merchants to
It seems to me that the in different markets?
benefit from fair and inclusive
AliExpress model brings to AliExpress offers infrastructure
global trade.
consumers outside of China support and services including
The event was different the same things that those payment, logistics, translation,
from Tmall’s China Cool within China have enjoyed digital marketing tools, etc. for
project which supported for a long time through companies to overcome [these]
two Chinese designers on other Alibaba platforms complexities. Cross-border
the Milan runways, wasn’t like Taobao. What are the e-commerce makes it possible
it? The AliExpress event advantages of this model for for companies to try different
featured a strong non- international consumers? markets concurrently before
Chinese component, with As part of Alibaba Group’s they make further decisions
Italian fashion brands from ecosystem that spans smart to focus on certain potential
the platform featuring in payments, logistics and tech- markets — based on direct
a catwalk show alongside nology, AliExpress enables engagement with consumers
Chinese brand Mishow. Why? consumers from around the and digital analysis.
Earlier this year (in 2019), world to buy directly from
Cross-border e-commerce
we opened registration to manufacturers and distrib-
has empowered Asian fashion
merchants and SMEs in four utors primarily in China.
companies, most notably
pilot countries outside of China: We’re dedicated to becoming
those in China, to directly
Italy, Spain, Turkey and Russia. a platform for worldwide
77
Executive Interview
reach global consumers. and we work closely with down product listings to closing
But how does it help them different partners and brands [down a seller’s] store.
specifically compete on price to streamline our resources
Amazon remains the
and quality? and processes. For example,
platform of choice for many
for the Milan Fashion Week
By being able to test new shoppers in western markets
event, we launched an online
markets without heavily like the US and Europe.
contest campaign, Take Me to
investing in the offline sales or How can AliExpress take
Milan, that saw thousands of
marketing channels that are tra- market share from Amazon
AliExpress fans from different
ditionally needed, companies are and other competitors?
countries participate, among
able to significantly reduce cost. Our main competitor is… ourself.
whom more than 60 were chosen
It also allows them to respond to We work hard and focus first and
to attend the show in Milan.
consumer needs faster so they foremost on our merchants to
can better adjust their manufac- Currently, the majority make sure they’re empowered to
turing and supply chain strat- of AliExpress sellers in leverage our digital platform in
egies. [They can] get insights categories like clothing and order to reach their audience and
on consumer preferences at a footwear seem to be selling be successful.
much lower cost and with less very low-priced products.
risk. This also makes it easier for Do you foresee a future where
them to make adjustments on higher-priced fashion brands This interview has been edited and condensed.
design, prices and to streamline can take better advantage
operations, and to acquire suffi- of AliExpress?
cient knowledge before making
The State of Fashion 2020
78
09. UNCONVENTIONAL CONVENTIONS
Trade shows have long been at the heart attention to such large-scale events. Likewise,
of the brand-retailer relationship in fashion. more than half of the brand and multi-brand retailer
They allowed retailers to buy the next season’s respondents to our 2019 survey agree that trade
clothes in one place in just a few days and were shows had little or no relevance to placing orders.134
cost-effective for brands who could see all their One challenge is that fashion seasons have
retailers, and meet new ones, in one go. They also shortened beyond the four seasons traditionally
allowed fashion media and industry experts to stay defined by luxury players. Pre-season orders are
on top of industry trends. shifting towards open-to-buy models and, since
But as technology disintermediates the retailers must keep their websites and windows
wholesale business, old buying models evolve, and fresh, this pace of output puts a huge creative and
the craving grows for experience over exchange, financial burden on brands for whom trade shows
trade shows and showrooms are becoming less are simply not frequent enough.
important for certain segments of the fashion In addition, digitisation has reduced the need
industry. Some are struggling to stay relevant while for brands and retailers to physically come together.
others are being discontinued altogether. There are already several online fashion B2B
Bread & Butter, for example, declared platforms connecting the two parties, such as Ordre,
bankruptcy in 2014 and was subsequently bought by Joor and eFashion Paris. While the very nature of
Zalando. Under new ownership, the biannual show fashion and its tactile properties means that B2B
for contemporary clothing opened its doors to the processes may never be completely absorbed by
public, set up digitally enhanced urban environ- digital — in the same way that online retail still
ments, held concerts and engaged with celebrities. makes up just a fraction of offline retail — there is
It was not enough, and the 2019 show was cancelled undoubtedly an impact. This is compounded by
with no plans for its return. buying teams becoming more streamlined and thus
While industry-wide data is hard to come being more selective about their travel plans as
by, US attendance numbers as collated by Trade competition with online retailers has intensified.135
Show Executive magazine at a number of shows “Are we about to see the complete demise of
such as Womenswear In Nevada and TransWorld’s physical showrooms and tradeshows? No, we’re
Jewelry Fashion & Accessories are showing signs not,” says Simon P. Lock, founder, chairman and
of plateauing in recent years, as retailers pay less chief executive of Ordre. “However, the industry is
79
Fashion System
heading towards an omnichannel approach. While the technology that identifies a brand’s best buyers
insignificant now, I believe in the next five years, when they walk in the door? [Or the technology]
20 percent of B2B business will happen online.” that allows you to quickly and effectively place
There is a third problem for trade shows today. orders, even outside of the three-to-four days of
Due in part to the value of harvesting customer the show? Those that don’t go online won’t be in
data, brands increasingly prefer selling direct to business in 10 years’ time.”
consumers either online or through their own Alongside these new formats, progressive
physical stores and select key accounts. As their trade show organisers are ensuring the content of
dependency on distribution via a broad population their events is as fresh as the fashion. By focusing on
of third-party retailers wanes, so does the need to industry issues as well as trends, they give retailers
invest in trade shows. and industry insiders more reasons to attend. ISPO,
In response, major trade shows have already which organises the world’s largest sportswear
begun to rethink their purpose and focus more on show, held a Digitize Summit this year, with a series
the attendee experience. Trade show organisers are of events on growth through digitisation.
trying to reinvent the concept with new formats, Pure London, a semi-annual show that
fresh content, and by appealing to new audiences. attracts 17,000 visitors, chose to emphasise
Pitti Uomo, one of the largest men’s clothing sustainability issues. Its Power of One campaign
trade shows, is held every six months in Florence aims to unite the fashion industry around the
The State of Fashion 2020
and attracts 30,000 visitors. In January, the topic and it has partnered with the United Nations,
organisers changed things up dramatically and actively promoting brands that are helping work
transformed the 16th century fortress where towards key sustainable development goals such
the show is held into a vibrant city square that as ending poverty.
encouraged networking more than sales. There Perhaps the biggest change some trade shows
were street-food stalls, art installations and runway are making is to stop being just about the brand-
shows. Salvatore Ferragamo and Givenchy have retailer trade. Opening up to end-consumers is one
even moved their menswear collection launches way to boost attendee numbers and reflects the
from fashion weeks to Pitti Uomo. growing trend for selling direct.
Even in China, where the B2B trade show “It’s never just a communication between
concept itself is much newer,136 players are striving the parties [in the sense] of buying a collection and
to bring more to the table than traditional trade selling a collection,” says Stefano Martinetto, chief
shows. As China’s largest fashion trade show,137 executive of Tomorrow London. “It’s about delivering
Ontimeshow hosts panel talks and multi-media experience for the end consumer, so there definitely
installations alongside creative showcases for needs to be attractive consumer experience.”
Chinese brands.138 White Milano opened its doors to consumers
Some trade shows have worked on integrating in June 2018 with the White Street Market.
the digital component to improve the in-person It allowed certain streetwear and sportswear
attendee experience, streamline the wholesale order labels, along with a few niche fashion brands, to talk
process and meaningfully reach buyers that can’t directly to both retailers and consumers. As White
attend. For instance, the Magic show in Las Vegas Milano chief executive, Brenda Bellei explained,
offers a digital concierge service to connect with “B2B remains essential, it is the focus of our
brands more efficiently.139 business and always our primary concern. But B2C
“We are starting to see some technical is a real opportunity for the brands.”
innovation, but this needs to happen in a deeper way The concept of a trade show for the public
as buyers and exhibitors are becoming frustrated has even led to entirely new events. Reference
with the old-school system,” says Lock. “Where is Berlin was a 24-hour fashion festival held in a
80
09. Unconventional Conventions
trendy Berlin neighbourhood in May. It attracted consumers. Those that fail to adapt sufficiently
directional fashion labels, such as Martine Rose or who misjudge their new ideas may disappear
and Comme des Garçons, as well as more than 2,300 from the calendar altogether. Fashion brand
members of the public.140 exhibitors need to adapt too. As shows become more
Textile and fibre trade shows further targeted, exhibiting brands should become more
upstream are innovating too. Exhibitors at Blossom careful and selective about which ones they join
Première Vision, which saw both attendee and while upgrading their own booths in a much more
exhibitor numbers grow at its 7th edition of the show engaging and digital way.
this year, used the opportunity to highlight their Trade shows and showrooms remain
latest innovations, particularly in sustainability.141 relevant for B2B relationships in the fashion
Even with all this innovation, trade shows still industry. However, with the entire model of
face enormous challenges. MICAM, a biannual trade buying at trade shows under increased pressure
show that attracted 43,000 visitors to Milan in early and retailers picky about which ones they attend,
2018, tried a range of initiatives to help attendees we would expect a continued decline in overall
and buyers better understand the industry, such attendance — only the most dynamic, exciting trade
as a partnership with trend forecasting agency shows that add real value to all parties will likely
WGSN, and a set of dedicated spaces with experi- survive in the long term.
ential features designed to promote co-learning
and collaboration. Yet, despite this effort, visitor
numbers declined; giving people what they want is Exhibit 11:
81
Executive Interview
Raffaello Napoleone
Chief Executive, Pitti Immagine
82
09. Unconventional Conventions
and knitwear) and Super in very good example of this in our Doesn’t Pitti need to make
Milan. His advice? That incum- own portfolio. We have a small bolder changes, given all the
bents like Pitti should pursue [gastronomy trade show] called changes happening in
meticulous upgrades rather than Taste that started 15 years ago your sector?
dramatic change. to help very small Italian food This is not just about paninis.
producers. I guess I’d summarise The changes in the fashion
BoF: Given all the challenges
by saying long glory to the big distribution system are forcing
that trade shows now face,
trade shows and good [fortune everyone to be closer to the
what do you think the future
for the best] of the rest. market, so we also have to
holds? Some people are
predicting a winner-takes- It’s not just the smaller approach every aspect [of the
all scenario where only a few players who should be visitor experience] obsessively
giant fashion trade shows concerned though, is it? because we have to keep aston-
will survive. Trade show giants like you ishing people. We’re trying to
can’t rest on your laurels have an even closer relationship
Do you want my serious answer
either. What are you planning with our visitors and exhibitors;
or my funny answer?
to do differently at Pitti Uomo trying to be more useful for
I’ll give you the silly one first: as
and your other fashion trade them; being in touch with them
a giant [trade show], of course
shows to stay ahead? all throughout the year and not
I hope that they’re right and
just during the show period.
that this will be the future. OK, There are many projects we
now for my serious answer: it need to do. We are going more So you don’t intend to expand
depends. Because if you find and more [down] the road of an the B2B scope of Pitti to
the right content for the right independent, lifestyle expe- include some B2C services?
market and you handle it well, rience. For example, we’d like You don’t see a need or
then you can set up a small, niche to do something similar for an opportunity to attract
trade fair that’s doing something our fashion fairs as we did at end-consumers as well as
serious. Look at Kingpins in our Fragranze fair, where we professionals?
Amsterdam. It’s a [specialist recently had a retrospective Why? We saw what happened to
community-based trade] show exhibition of Jean-Claude Ellena, Bread & Butter, the first trade
with a very small number of one the most important noses in show to open to the public and to
denim fabric producers. It’s the the perfume world. We’d also like the consumer. No, we have to be
[leading B2B] appointment for to have a stronger food service in very, very [clear] with our posi-
that market niche, compared to the fortress (Fortezza da Basso tioning. B2C happens every day
the giant [generalist textile trade venue) because we can offer a from 10am until 7pm at shops
shows like] Première Vision or much more appealing and inter- on shopping streets [like] Via
Milano Unica. esting Italian food experience for Montenapoleone. I mean, what
our visitors.
So if it’s not necessarily bad
news for all small trade shows
in the fashion industry, what
“The changes in the fashion distribution
traits will set apart those who system are forcing everyone to be closer
make it and those who fall by
the wayside? to the market, so we also have to approach
It’s a question of being credible. every aspect [of the visitor experience]
You have to find the right timing
too, of course, and eventually obsessively because we have to keep
[you’ll have to broker] very
special appointments between
astonishing people.”
your exhibitors and buyers. But
This sounds more like fine can a B2B trade fair do better for
if you’re adding value, then small
tuning the visitor experience consumers than the actual stores
trade shows can still work in the
than big strategic planning. do? And how are we supposed to
future, yes. We actually have a
83
Executive Interview
approach the consumer without button [because] they’re using next in terms of keeping
letting them touch or buy? No, more instruments than in the Pitti’s curation on point?
we don’t trust this B2C approach past. It’s not change [that’s the For the world’s best menswear
for [trade fairs]. What we need challenge], it’s the speed of brands and designers to choose
to do is keep making the profes- the change. us to launch their products at
sional experience richer so that our show, we need to offer them
the professionals go home feeling
like a real community.
“People come the best stage to do so. The same
for visitors. That’s how the Pitti
But given the continued rise
because [they] can’t “peacocks” started a few years
of DTC [direct-to-consumer] afford to miss Pitti. ago [the phenomenon that saw
dapper men flock to Pitti Uomo
brands and e-commerce the
wholesale fashion business is That’s the difference as a destination to be seen as
getting squeezed. Isn’t it only between Pitti and well as do business]. You know,
somebody asked us, “How did
logical that the traditional
meeting places for wholesale fashion week… Here you launch the peacocks in
Pitti?” Well, we didn’t invest one
players will also get squeezed? at the fortress, it’s euro in that actually.
It’s true that there’s a [rebalanc-
ing] of wholesale and multibrand a real community What do you mean?
[stores], but the ones that remain we’ve created.” People come because [they]
only get stronger and stronger. can’t afford to miss Pitti. That’s
So we need to have even stronger the difference between Pitti
At the latest edition of
The State of Fashion 2020
84
10. DIGITAL RECALIBRATION
85
Fashion System
hovering near record highs, there is a reasonable The affliction seen in the wider tech sector
basis for investors to take stock. The tech-dom- is also reflected in fashion, where many of the
inated Nasdaq has climbed steadily for a decade most recent class of IPOs have not traded well in
but dipped in late 2018 and in 2019 and has traded secondary markets. An investor who invested $100
flat, after recovering to beat its earlier highs. As in fashion-tech IPOs over the past two years would
IPOs continue apace, performance expectations now have $73 remaining.146
are softening. In this year’s class, only 24 percent It’s not just public companies that have
of companies are expected to report positive net struggled recently. Beyond the high-profile
income in their first year on the market, making WeWork saga, online fashion resale marketplace
them the least profitable IPO class of any year since Poshmark in September delayed plans for an IPO
the peak of the tech boom in 1999, according to until next year to “focus on boosting sales and
Goldman Sachs.144 improving its execution.”147 The company, whose
investors include Menlo Ventures and Temasek,
In this year’s class, only 24 percent brings to light market caution as fashion-tech
investors weigh up their exit strategies.
of companies are expected to Some of the world’s biggest companies
report positive net income in their that invested in fashion-tech players are showing
The State of Fashion 2020
first year on the market, making signs of reviewing their digital strategies, at the
expense of these pure play brands. Walmart in
them the least profitable IPO class June announced plans to divest or restructure a
of any year since the peak of the number of e-commerce businesses, including Jet.
tech boom in 1999. com, an online start-up it acquired in 2016 for
$3.3 billion.148 In October Walmart sold women’s
“Numerous companies have come public apparel player ModCloth to an investor group for
this year and not traded well… this typically an undisclosed price. It has also been cutting staff
marks the end of speculative behaviour,” says at digitally native menswear brand Bonobos.149
Mike Wilson, chief investment officer and chief
US equity strategist at Morgan Stanley.145 “This “This change in investor behaviour
change in investor behaviour may also mark the may mark the end of the frenzy for
end of the frenzy for unicorn private companies
that have great growth potential but are currently
unicorn private companies that
unprofitable and burn a large amount of cash every have great growth potential but
year, requiring ongoing financing.” are currently unprofitable and burn
Indeed, post-IPO, investors have often
ended up disappointed. The Renaissance IPO
a large amount of cash every year,
Index gives investors exposure to companies that requiring ongoing financing.”
have been public in the US for two years or less,
with tech players accounting for roughly half of the Experience from the past offers sobering
companies included. The index has faltered since lessons from investor exuberance in fashion-tech
August, having recovered from its large dip at the players, as several have fallen from dizzying
end of 2018. No wonder there are concerns that heights. After raising $40 million of funding in
the market in some ways feels reminiscent of the 2012, Nasty Gal filed for bankruptcy protection in
lead-up to the dot-com boom of the early 2000s. 2016 and was sold to Boohoo for just $40 million
86
10. Digital Recalibration
the following year, spurred in part by heavy they are clear about which elements of their
investment in logistics and expensive customer business model will drive profit. For larger
acquisition. Gilt Groupe deviated from its core as it players, as highlighted in last year’s report in
moved beyond apparel to travel sales and food, and “Digital Landgrab,” companies that diversify their
expanded into Asia at the height of its popularity, ecosystems to related and overlapping businesses
while industry critiques also point to the slower will strengthen their leads over pure players who
uptake in flash-sales by consumers as was expected rely solely on retail margins and existing offerings.
by investors.150 It was acquired by Hudson’s Bay An important performance differentiator will be
Company for $250 million in 2016 — a fraction of data and analytics that can make life easier for
its $1 billion valuation in 2011 — and since has been customers and suppliers, and may be the key to
bought by competitor Rue La La, which just four outperformance in the longer term.
years prior Gilt Groupe was said to be eyeing up as
an acquisition.
Exhibit 12
An important performance
differentiator will be data and If you invested $100 across
analytics that can make life easier the fashion-tech IPOs of the past
for customers and suppliers, and two years, you would now have $73
may be the key to outperformance DOLLAR VALUE OF INVESTMENT IN FASHION TECH IPO
STOCKS, $US
in the longer term.
Nobody has a crystal ball when it comes to 100
87
MCKINSEY
GLOBAL
FASHION
INDEX
The State of Fashion 2020
88
McKinsey Global Fashion Index
In this edition of the McKinsey Global (EBITA) margins overall have remained relatively
Fashion Index, we deepen our exploration of stable — hovering between 10.4 percent and 11.7
economic profit — a measure of value creation that percent over this decade. However, even these
looks at a company’s profit less its cost of capital, slight fluctuations in EBITA margins have had a
thus taking into account how much each company notable impact on the industry’s economic profit
invested to generate its performance. First, we — and economic profit is particularly sensitive to
unpack historical economic profit composition margins given that EBITA is a core component in
and development across the industry before calculating a company’s return on invested capital.
taking another look at who has now risen to the Mirroring the rise in economic profit since 2016,
top as “Super Winners.” To understand what it the industry’s EBITA margins have risen nearly
takes to move through the ranks, we also explore half of a percentage point to 10.8 percent in 2018.
companies lagging in economic profit. We then Examining the evolution of economic
turn to the private side to spotlight some of the profit over time within price segments tells a more
industry’s “Hidden Champions” before closing nuanced story. For some years now, the polari-
with our annual forecast for industry revenue sation of the market has progressed, with both
growth by geography, value segment and luxury and value and discount players gaining
product category. share with an increasing number of consumers
choosing to make major “investment” purchases
The Evolution of the Industry while otherwise opting for value. This is also
Economic profit has grown for the second reflected by total return to shareholders (TRS).
year running, following consecutive years of Looking at TRS over the past three years by value
decline from 2012 to 2016. Low single digit revenue segment, luxury and value clearly outperformed,
growth in 2018 attributed little to this increase delivering 22 percent and 14 percent respective-
in economic profit. Instead, the 16 percent rise ly. Considering premium/bridge’s 1 percent and
came largely from improved operating margins mid-market’s -2 percent during the same time
driven by successful cost cutting. The industry’s frame, the bifurcation across price segments
earnings before interest, taxes and amortisation is evident.151
89
Exhibit 13:
75 77
66
53
EBITA margin, % 11.7 11.7 11.7 11.6 11.2 10.7 10.4 10.7 10.8
The State of Fashion 2020
Exhibit 14:
91
21 29
34 37
75 77
28
66
23
36
53
29
59
54 44 16
46 42 42
42 40 39
20 17 20 22 28 34 42 31 25
The squeezed premium/bridge and By 2018, luxury accounts for almost 40 percent
mid-market players drove nearly 80 percent of of the industry’s economic profit, more than
the absolute decline in industry economic profit doubling its share since 2016.
between 2010 and 2016. During this time, The economic profit perspective reveals
their EBITA margins have been eroded by rising that the market share gain of value and discount
selling, general & administrative expenses (SG&A). players masks some challenges faced by these
The premium/bridge segment was dramatically segments. Value and discount players have seen
compressed, with its share of overall industry their absolute profits shrink as increasing costs of
economic profit falling from 15 percent in 2010 goods sold (COGS) has outpaced their rapid revenue
to just 2 percent in 2016. growth. Reacting to rising sourcing costs and
In contrast, the luxury sectors have increased markdowns, some of these players have
largely driven the industry’s rebound over the upgraded their assortment planning capabilities by
last two years, accounting for almost 80 percent revising their end-to-end product development and
of the industry’s economic profit growth. This is sourcing processes to increase efficiency.
from both strong revenue growth and a 3 percent- As discussed, the IFRS16 changes have
age-point improvement in EBITA margins. created an even starker winner-takes-all industry
91
Exhibit 15:
11
21-80%
-3 -2 -1
-43
1
IF CALCULATED USING PRE-IFRS16 NUMBERS, THE TOP QUINTILE IN 2018 WOULD HAVE CONTRIBUTED 137 PERCENT OF THE INDUSTRY’S ECONOMIC PROFIT WITH MIDDLE
QUINTILES CONTRIBUTING 4 PERCENT AND THE BOTTOM QUINTILE CONTRIBUTING -41 PERCENT
SOURCE: MCKINSEY GLOBAL FASHION INDEX (MGFI)
Exhibit 16:
49 45 45 44
Value 55
68 74 64 60
creators
51 55 55 561
Value 45
destroyers 32 26 36 40
1
IF CALCULATED USING PRE-IFRS16 NUMBERS, THE PERCENTAGE OF VALUE DESTROYERS IN THE INDEX IN 2018 WOULD BE 48 PERCENT
SOURCE: MCKINSEY GLOBAL FASHION INDEX (MGFI)
McKinsey Global Fashion Index
by shifting about 10 percent of players from Fashion and McKinsey’s annual State of Fashion
being profitable to being loss-making in terms of survey. Praise was given to Inditex’s fast and
economic profit. This has led to further concentra- flexible business model that helps it innovate
tion of economic profit among the top quintile of quickly in response to new trends; LVMH was
players ranked by economic profit generation. lauded for its ability to stay true to its core
In 2018, the top quintile contributed over 175 while simultaneously reinventing itself; while
percent of the economic profit. The middle respondents recognised Nike’s drive for innovation
quintiles, however, have seen their contribution across products, categories and business models,
compressed from positive 11 percent earlier in along with its ability to connect and build a
the decade to -1 percent now. Over the last three community with its consumers.
years, these middle quintiles have also become In this year’s top 20 Super Winners, there
net destroyers of value. In fact, the proportion are three new entrants — Anta Sports, Heilan
of players that destroy value has grown steadily Home (HLA Corporation) and Lululemon.
since 2011 causing the industry to move from They have leapfrogged past several of last year’s
being a value-creating majority to a value-destroy- winners, including Michael Kors and Gap.
ing majority. The percent of value destroyers in These new players’ performance and rise through
the MGFI more than doubled between 2011 and the ranks is reflective of the strength of the
2018, from 26 percent to 56 percent respectively. sportswear and athleisure category and Chinese
The polarisation is even more pronounced when companies. Strong revenue growth in sportswear,
analyses show that it is the top 20 players who in line with last year’s forecast outperformance,
continue to carry the industry’s value creation. has propelled category players upwards in the
These top 20 players — the “Super Winners” (see MGFI. Chinese players rising up the MGFI
Exhibit 17) — account for 138 percent of the total reinforce the story of shifting attitudes in favour
industry’s economic profit in 2018. of local brands by Chinese consumers, as local
Among this year’s Super Winners are heroes increasingly compete with internation-
players that stand apart thanks to their continuous al high-street brands in areas such as value for
innovation of both products and customer money, innovation in design and quality,
experience, their development of strong brand and customer service.152
equity through community connections on Luxury players also experienced healthy
issues that matter, and a notable focus on digital revenue growth. Notable in luxury is Kering’s
(apart from predominantly off-price retailers). particularly impressive rise through the ranks,
With higher than average revenue growth, Super driven by Gucci’s double-digit year-on-year sales
Winners also outperform on gross profit margin growth, and high performance in Asia-Pacific
and capital efficiency compared to the rest of the markets such as Japan. US companies meanwhile
industry. At 54 percent gross profit margin, Super benefitted from the large corporate tax cuts.
Winners average 6 percentage points higher than Several top players whose economic profit fell,
the rest of the industry. Super Winners are also such as Richemont and H&M, have in fact been
more capital efficient with 55 percent of invested investing heavily with the aim of securing their
capital as percent of sales compared to the rest of long-term future.
the industry’s 66 percent.
This year’s top three companies by Changing fortunes
economic profit — Nike, Inditex and LVMH — Looking at companies across the MGFI
are also the most inspiring, according to industry over the past five years and building on McKinsey
executives that responded to The Business of analysis as per an earlier op-ed in The Business of
93
Exhibit 17:
Nike 2,980
Inditex 2,910
LVMH 2,316
TJX Companies 1,669
Kering 1,513
Hermès 1,311
Fast Retailing 1,059
Adidas 1,008
Ross 897
VF Corporation 861
Pandora 641
Richemont 568
Anta Sports 532
Next 515
L Brands 483
HLA Corporation 413
The State of Fashion 2020
H&M 401
Lululemon 400
Hanes Brands 371
Burberry 315
Exhibit 18:
5 – 10 ~55
3–5 ~45
Fashion,153 it is apparent that there is low mobility have fallen out of favour with consumers. The
across performance clusters. It is a challenge to final category is fast-growing digital start-ups
join players ranked in the top quintile. These such as Farfetch, Global Fashion Group and
top performers have strong staying power as Jumia — which are still investing heavily in their
two-thirds of the top quintile class of 2013 pursuit of rapid growth at the expense of profits. If
maintained their position in 2018. Their sustained successful, these players have the highest chance
outperformance has been driven in part by decisive to leave the low performance cluster. However,
moves aligned with industry trends, expansion as investors are becoming increasingly impatient
into growth segments and the thoughtful realloca- with digital players that have yet to prove a path to
tion of resources across the portfolio. profitability (see Digital Recalibration), we may see
For players in the middle quintiles, the odds some of these companies change course.
of achieving top performance and moving up into
the top quintile is quite slim. In fact, 75 percent of Hidden Champions
this middle range remain where they are and close The Super Winners are all public
to 15 percent even slip into the bottom quintile. companies as the economic profit analysis is based
Encouragingly, the highest mobility is on public data. However, there are several private
within the bottom quintile. More than 60 percent companies that would undoubtedly qualify to join
of players ranked in the bottom quintile in 2013 that group. This analysis includes fashion subsid-
have moved out of this laggard group, with 7 iaries of public non-apparel parent companies
percent even rocketing up into the top quintile, but excludes private companies that don’t earn
while we estimate bankruptcy rates in this quintile most of their revenues from fashion. While a more
to be just 3 percent over the five-year period. fragmented group, private companies also wield
A significant factor in likelihood of rank considerable power and influence in the fashion
improvement is capital efficiency. While many industry. Collectively, combined revenue estimates
across the industry are investing to grow, top of private players generating more than $1 billion
climbers have been able to reduce invested capital revenue in 2018 are equivalent to about a third of
as a percentage of sales by 8 percentage points the total revenues of the 20 Super Winners. Most
compared to a 17 percentage point increase in those of this is pooled among the private companies
who have dropped the most in ranking. These top generating more than $3 billion in sales. Family-
climbers have strengthened their value proposi- owned businesses account for more than 65
tions and made efforts to align strategically both percent of these Hidden Champions.
on the consumer-facing side with brand-building, Among these private players are Hidden
pricing, product/design and experience as well Champions, many of which are players that
operationally to boost efficiency along the value successfully dominate their category, each with
chain. Financially, these efforts improve both a strong sense of self. Some of these players have
revenue growth and bottom-line efficiency. achieved strong global brand recognition, while
Companies stuck in the bottom fit into one others are less well known. One of these Hidden
of three archetypes. Department stores account Champions is Chanel, a well-regarded symbol
for 40 percent of the bottom companies ranked by of status and luxury with estimated revenues in
economic profit, either because they are struggling excess of $10 billion. Almost 110 years-old and in
to modernise their format to compete with fast its third generation of family ownership,154 Chanel
fashion and e-commerce, or because they operate has mastered its categories from high-end iconic
in saturated markets. The second archetype is offerings such as its quilted handbags to aspira-
brands that have seen revenues collapse as they tional entry products such as lipsticks.155 Also
95
McKinsey Global Fashion Index
benefiting from high brand perception, Rolex is one company to be one of its factors for success, saying
of the few large independent and private luxury the “concept of a gradual, controlled growth as a
watch brands remaining, known for their timeless family-run business is still the right way forward”
designs and commitment to precision. for the company.157 Today, Deichmann holds a
At the opposite end of the price spectrum, strong dedication to serving consumers and is
Primark leads in discount fashion by offering exploring digitisation and format rejuvenation.
stylish assortments at low prices in high-street Among companies earning between $3
locations. What Primark shares with its luxury and $5 billion in annual sales, Swarvoski stands
Hidden Champion peers is a clear customer out with its strong global brand awareness.
value proposition. For Primark, it goes beyond Historically a leader in crystals and crystal
price to offering consumers the satisfaction of products, Swarovski has made its own play into
finding a great value-for-money deal in a shopping premium and luxury consumer segments through
environment catering to its target group. In the Atelier Swarovski and designer collaborations.
last decade, Primark’s expansion drive has put Growing as a respected fashion jeweller with its
many traditional discount and value apparel recognisable swan symbol, the time when this
retailers under pressure and triggered some to fifth-generation crystal company was just known
renew their format. Commitment to this core for its collectibles are long gone. This growth has
value proposition has enabled efficiently strong been additive, with Swarovski remaining a strong
The State of Fashion 2020
alignment in operations and strategy. This supplier to both the fashion industry and enter-
commitment includes a focus on brick-and-mor- tainment industry — partnering with costume,
tar only, a decision requiring Primark to look for jewellery and set designers to maintain a strong
ways to renew the experience value of its stores Hollywood presence.158
to attract younger customers despite online-first Of a similar size, Bestseller stands out as
shopping habits. Primark and its peers will need to a house of independent brands. Among its broad
respond to the increased importance of sustaina- portfolio, Bestseller’s main brands — Vero Moda,
bility among consumers going forward. Jack & Jones and Only — compete with fast fashion
High expansion drive is also one of the players. To do so, these brands are prioritising
characteristics of Decathlon, one of the world’s refreshed retail formats, digitisation and revision of
largest sporting goods retailers globally known product assortment in their strategies. In parallel,
for exceptional private label offerings across a Bestseller as a group has made improvements in
comprehensive set of categories. Their strong operating processes and inventory management
private labels are also ultra-segmented and such as implementing the use of RFID.159
becoming more sophisticated to match rising As a category, footwear tends to be one
consumer expectations. Decathlon’s value segment of the more fragmented with category leaders
play in the sporting and outdoor space enables found among smaller players delivering revenues
the brand to capture a wider pool of fashion between $1 billion and $3 billion. Almost 200
consumers looking at sportswear as both fashion years old and selling more than 50 million pairs of
and activewear.156 shoes each year,160 Clarks is one of these footwear
Another vertically integrated player is category leaders. Building on a historical archive
Deichmann, a clear leader in Europe for value of more than 22,000 styles, Clarks maintains its
footwear and unbeatable in Germany in this leading presence in the category by continuing to
segment. With continued global and format push product innovation with enduring style and
expansion, Deichmann is a third-generation family comfort.161 Another footwear Hidden Champion
enterprise. Family-ownership is cited by the is Bata Shoes, a vertically-integrated shoe player
96
McKinsey Global Fashion Index
based in Switzerland that has built up a leading concern, especially given inevitable election-year
position in several key emerging and frontier uncertainty. Emerging Asia-Pacific markets will
markets around the world like India, Bangladesh still be relatively strong, but retail sales in China
and Chile. are already falling short of expectations. Mature
Operating privately has given many Europe will continue to suffer from a wider
companies more freedom than they might have economic malaise and Brexit uncertainty, while
had in public hands and this flexibility has growth in emerging Europe, Latin America, and
helped sustain success. Chanel, for example, has the Middle East and Africa is expected to remain
repeatedly insisted that the company is not, and stable overall, with some brighter spots, such as
will not, be for sale, with Philippe Blondiaux, the Brazil and Nigeria.
company’s chief financial officer, reconfirming to Stronger price point polarisation is seen
The Business of Fashion “for the hundredth time in consumer purchasing behaviour in mature
this year”, that “Chanel is not for sale, Chanel is Asia-Pacific and China. This will lead to continued
not preparing for an IPO.” Blondiaux notes that resilience in both the luxury and the value and
the company’s investments, including more than discount segments, while further squeezing the
$2 billion over 12 months in sustaining creativity middle market.
and innovation, are meant to maintain Chanel’s While clothing’s downtick is in line with
independence.162 Tory Burch similarly believes the lower industry forecast as consumers choose
that private operations enable the company to to buy less overall and explore alternatives such
deliver on its plans, letting company leaders focus as rentals, sportswear is anticipated to maintain
on running the business instead of worrying about the highest growth rate at 6 to 7 percent. The
the volatility of the stock price or public scrutiny.163 success of sportswear powerhouse brands such as
Nonetheless, the group of Hidden Champions Nike, Adidas and Lululemon will be supported by
also undoubtedly includes players that are value the emergence of a range of smaller niche players
destructive, given a more limited investor base and the rise of outdoor and active brands. Growth
that perhaps is more forgiving of a negative cost in jewellery and watches will remain low, but
of capital. handbags and luggage will continue to perform
All in all, while the public companies steal well as luxury brands capitalise on the growth in
a lot of the industry spotlight, hidden champions tourism from regions such as mature Asia-Pacific,
prove that a great deal of the industry’s value China and the Middle East.
sits elsewhere. Although this growth forecast shows only
an incremental slowdown in overall industry
Looking Ahead — Apprehension Amid growth in 2020, as highlighted in On High Alert,
Uncertainty geopolitical and trade tensions alongside intrinsic
After a strong year in terms of economic industry challenges are leading to heightened
profit growth, the forecast fashion industry anxiety and wariness in fashion for the year ahead.
revenue growth for 2020 is 3 to 4 percent, down
from the 3.5 to 4.5 percent growth predicted for
2019. The global outlook for consumer spending is
being depressed by rising trade tensions, political
uncertainty and economic concerns as central
banks take action.
In North America, slowing consumer
spending amid an ongoing tariff war poses a
97
Exhibit 19:
2019 2020
GEOGRAPHIC REGION
VALUE SEGMENT
PRODUCT CATEGORY
The production of biologic products, typically Germany, Gibraltar, Greece, Iceland, Ireland, Botswana, Burkina Faso, Burundi, Cameroon,
textiles in the fashion industry context, from Italy, Liechtenstein, Luxembourg, Malta, Cape Verde, Central African Republic, Chad,
raw materials such as living cells, molecules, Monaco, Netherlands, Norway, Portugal, Spain, Comoros, Congo, Democratic Republic of
extracellular matrices and biomaterials. Sweden, Switzerland, United Kingdom. Congo, Djibouti, Egypt, Equatorial Guinea,
Eritrea, Ethiopia, Gabon, Gambia, Ghana,
BoF-McKinsey State of Fashion 2020 EV/sales Guinea, Guinea-Bissau, Iran, Iraq, Israel, Ivory
Survey Enterprise value to sales compares a company’s Coast, Jordan, Kazakhstan, Kenya, Kuwait,
Proprietary joint survey by The Business of enterprise value to its annual sales. It is Kyrgyzstan, Lebanon, Lesotho, Liberia,
Fashion and McKinsey. It asks international typically used as a metric that quantifies the Libya, Madagascar, Malawi, Maldives, Mali,
fashion executives and experts to rate their purchasing cost of a company’s sales. Enterprise Mauritania, Mauritius, Morocco, Mozambique,
business sentiment, investment plans, and value accounts for market capitalisation, debt, Namibia, Niger, Nigeria, Oman, Pakistan,
industry trends. 291 respondents participated and cash. Qatar, Réunion, Rwanda, Sao Tomé e Príncipe,
in the State of Fashion Survey for the State Saudi Arabia, Senegal, Seychelles, Sierra
of Fashion 2019 report between August and GCC Leone, Somalia, South Africa, South Sudan,
September 2019. Gulf Cooperation Council countries — a political Sudan, Swaziland, Syria, Tajikistan, Tanzania,
and economic alliance of six Middle Eastern Togo, Tunisia, Turkmenistan, Uganda, United
Capital efficiency countries, namely Saudi Arabia, Kuwait, the Arab Emirates, Uzbekistan, Yemen, Zambia,
A measure of profitability, used to assess how United Arab Emirates, Qatar, Bahrain and Oman. Zimbabwe.
effective a company is at turning capital into
financial performance. Generation X Microplastics
Demographic cohort born circa 1965–1981, Very small pieces of plastic, typically less than
Closed-loop recycling following the Baby Boomers. 5mm in length, that pollute the environment.
A recycling process where post-consumer Can often be contributed by the shedding
waste is collected and used to manufacture Generation Z of synthetic textiles during usage. Their
new products. The quality of materials are at Demographic cohort born circa 1996–2019, environmental harm is caused by their slow
the similar levels and are cycled into the same following the millennial generation. degradation, which occurs over hundreds if not
application or applications that require similar thousands of years.
quality. International Financial Reporting Standards
(IFRS) Millennials (Generation Y/Gen Y)
COGS Accounting standards used to establish Demographic cohort born circa 1982–1995.
An income statement item stating the total standardisation of reporting across Are also commonly referred to as Generation
costs used to create a product or service, which international boundaries. It is required in over Y (this name is based on Generation X, the
has been sold. 140 jurisdictions, including the EU, however generation that preceded them).
not in some major economies such as the
EBITA United States. North America
An income statement item that deducts Canada, Puerto Rico, United States of America.
amortisation from earnings before interest and Latin America
taxes (EBIT). An alternative measure of income Anguilla, Antigua, Argentina, Aruba, Bahamas, Price segments
a firm makes from its core operations. Barbados, Belize, Bermuda, Bolivia, Brazil, As definitions of market segments often vary
British Virgin Islands, Cayman Islands, across sources, all companies in the MGFI
EBITA margin Chile, Colombia, Costa Rica, Cuba, Curacao, are categorised based on a Sales Price Index,
A measurement of a company’s EBITA as a Dominica, Dominican Republic, Ecuador, El providing a range of prices for a standard basket
percentage of its total revenue. Salvador, Grenada, Guadeloupe, Guatemala, of products within each segment and home
Guyana, Haiti, Honduras, Jamaica, Martinique, market — thereby relying only on a quantitative
100
INFOGRAPHICS
measure, whereby companies in each segment The State of Fashion 2020 infographics: Infographics:
price their items similarly.
1. On High Alert Exhibit 1–2. Industry Outlook
Return rate Source: BoF-McKinsey State of Fashion 2020 Source: BoF-McKinsey State of Fashion 2020
Rate of product returns. Survey, The Business of Fashion and McKinsey Survey
& Company, September 2019
SG&A Exhibit 3. On High Alert
An income statement item stating all costs not 2. Beyond China Source: “Economic Conditions Snapshot,
directly tied to making a product or service. Source: United Nations, Population Division, September 2019: McKinsey Global Survey
World Population Prospects 2019. Includes results”, McKinsey, September 2019, https://
SME India, Southeast Asia, Brazil, Russia, UAE and www.mckinsey.com/business-functions/
Small and medium enterprises. Saudi Arabia strategy-and-corporate-finance/our-insights/
economic-conditions-snapshot-september-
Super Winners 3. Next Gen Social 2019-mckinsey-global-survey-results
The top 20 fashion players by economic profit. Source: BoF-McKinsey State of Fashion 2020
In 2018, they collectively contributed 138 Survey, The Business of Fashion and McKinsey Exhibit 4. Beyond China
percent of the fashion industry’s economic & Company, September 2019 Source: United Nations, Population Division,
profit. World Population Prospects 2019
4. In the Neighbourhood
TRS Source: BoF-McKinsey State of Fashion 2020 Exhibit 5. Next Gen Social
A measure of stock performance, factoring Survey, The Business of Fashion and McKinsey Source: “The Global State of Digital in 2019
in capital gains and dividends to show total & Company, September 2019 Report”, Hootsuite/ We are Social 2019,
return to shareholders. It is expressed as an January 2019, https://hootsuite.com/pages/
annualised percentage. 5. Sustainability First digital-in-2019#accordion-115547
Source: BoF-McKinsey State of Fashion 2020
Value creator Survey, The Business of Fashion and McKinsey Exhibit 6. In the Neighbourhood
A company generating positive economic profit. & Company, September 2019 Source: BoF-McKinsey State of Fashion 2020
Survey, The Business of Fashion and McKinsey
Value destroyer 6. Materials Revolution & Company, September 2019
A company generating negative economic profit. Source: BoF-McKinsey State of Fashion 2020
Survey, The Business of Fashion and McKinsey Exhibit 7. Sustainability First
Value segment & Company, September 2019 Source: McKinsey 2019 US consumer cohort
Segmentation by price of the fashion markets survey
and participating companies used in the 7. Inclusive Culture
McKinsey Global Fashion Index and the Source: McKinsey analysis based on data for Exhibit 8. Materials Revolution
BoF-McKinsey State of Fashion Survey. over 300 public fashion companies in our Source: McKinsey S&CF insights, Growth
The companies are categorised in 6 segments, McKinsey Global Fashion Index (MGFI) Analytics
which are based on a price index (not price
perception) across a wide basket of goods and 8. Cross-Border Challengers Exhibit 9. Inclusive Culture
geographies. The segments comprise from Source: “Winning at Cross-Border eCommerce: Source: The Business of Fashion employee
lowest to highest price segment: Discount, Growth, Trends, Opportunities and Strategy in survey 2019, n = 1,801
Value, Mid-market, Premium/Bridge, 2019”, eTail and Vinculum, May 2019
Affordable Luxury, Luxury. Exhibit 10. Cross-Border Challengers
9. Unconventional Conventions Source: “Marketplaces year in review
Source: Expert interviews 2018”, Marketplace Pulse, https://www.
marketplacepulse.com/marketplaces-year-in-
10. Digital Recalibration review-2018. 2019 data obtained directly from
Source: Based on stock price data on Yahoo Marketplace Pulse
Finance as of Oct 21st close. EURUSD
rates used: Jul 2nd 1.1287, Oct 21st 1.1152. Exhibit 11. Unconventional Conventions
Includes IPOs during Nov 2017 – Oct 2019: Source: BoF-McKinsey State of Fashion 2020
Global Fashion Group, The RealReal, Jumia Survey, The Business of Fashion and McKinsey
Technologies, Ruhnn Holding, Mogu, Revolve, & Company, September 2019
Stitch Fix and Farfetch. Adika Style excluded
due to limited liquidity Exhibit 12. Digital Recalibration
Source: Total mentions of “digital”, “online”
and “e-commerce” in earnings call transcripts
for top 10 players by economic profit in MGFI
101
END NOTES
1 “World Economic Outlook, July 2019: Still 14 “Louis Vuitton Now Sees “Unheard 32 The World Bank, https://databank.
Sluggish Global Growth”, International of” Growth in China”, Bloomberg, June worldbank.org/data/download/POP.pdf
Monetary Fund, https://www.imf.org/en/ 2019, https://www.bloomberg.com/news/
Publications/WEO/Issues/2019/07/18/ articles/2019-06-05/lvmh-lifts-luxury-shares- 33 “Tariff remains a critical trade barrier for
WEOupdateJuly2019 on-vuitton-s-unheard-of-china-growth the textile and apparel sector”, FASH445 Global
Apparel & Textile Trade and Sourcing, Dec
2 “WTO warns trade wars threaten living 15 “Kering’s Gucci joins peers in defying China 2017, https://shenglufashion.com/2017/12/13/
standards and jobs”, BBC News, 1st October fears”, Business Times, February 2019, https:// tariff-remains-a-critical-trade-barrier-for-
2019, https://www.bbc.co.uk/news/ www.businesstimes.com.sg/consumer/kerings- the-textile-and-apparel-sector-updated-
business-49899841. gucci-joins-peers-in-defying-china-fears december-2017/
3 “China’s US Exports Tumble as Tariffs Bite”, 16 “Bullish Signs From Lululemon Earnings”, 34 McKinsey analysis, based on Euromonitor
The Wall Street Journal, 14th October 2019, SeekingAlpha, September 2019,. https:// data
https://www.wsj.com/articles/chinas-u-s-ex- seekingalpha.com/article/4291567-bullish-
ports-tumble-as-tariffs-bite-11571037788 signs-lululemon-earnings 35 McKinsey FashionScope data
4 “Economic Conditions Snapshot, September 17 H&M Group Annual report 2018, https:// 36 World Population Prospects 2019, United
2019: McKinsey Global Survey results”, hmgroup.com/investors/reports.html Nations Population Division, Department of
McKinsey & Company, September 2019. https:// Economic and Social Affairs
www.mckinsey.com/business-functions/ 18 Inditex’s Annual report 2018, https://www.
strategy-and-corporate-finance/our-insights/ inditex.com/investors/investor-relations/ 37 “Digital 2019: Essential insights into
economic-conditions-snapshot-septem- annual-reports how people around the world use the
ber-2019-mckinsey-global-survey-results internet, mobile devices, social media, and
19 “China Digital Consumer Trends in 2019”, e-commerce”, We are social and Hootsuite,
5 “WTO lowers trade forecast as tensions McKinsey & Co, September 2019, https:// January 2019, https://hootsuite.com/pages/
unsettle global economy”, World Trade www.mckinsey.com/featured-insights/china/ digital-in-2019#accordion-115547
Organisation, 1st October 2019, https://www. china-digital-consumer-trends-in-2019
wto.org/english/news_e/pres19_e/pr840_e.htm 38 McKinsey analysis, based on Euromonitor
20 McKinsey FashionScope analysis data for “Apparel and footwear” market in 2018
6 “Staff Working Paper No. 818: The impact
of Brexit on UK firms”, Bank of England, 21 World Economic Outlook, July 2019, IMF, 39 “e-Conomy SEA 2018: Southeast Asia’s
August 2019, https://www.bankofengland. https://www.imf.org/en/Publications/WEO/ internet economy hits an inflection point”,
The State of Fashion 2020
102
emarketer-reduces-us-time-spent-estimates- business”, Facebook Business, 23rd May 78 Ibid
for-facebook-and-snapchat 2019, https://www.facebook.com/business/
news/insights/how-mobile-first-connec- 79 “Fashion’s new must-have: sustainable
48 “The Golden Age of Instagram Marketing Is tions-drive-local-business sourcing at scale”, McKinsey Apparel CPO
Over”, The Business of Fashion, August 2019. Survey 2019, October 2019, https://www.
https://www.businessoffashion.com/articles/ 63 Forrester analytics: online fashion retail mckinsey.com/industries/retail/our-insights/
professional/social-media-advertising-ris- forecast, 2017 to 2022 (global) and Forrester fashions-new-must-have-sustainable-sourcing-
ing-costs-instagram-facebook analytics: luxury retail forecast, 2018 to 2023 at-scale
(global)
49 Facebook Inc forecasts, CNN business, 80 “European CEOs: Changing consumer
https://money.cnn.com/quote/forecast/ 64 McKinsey and Red Associates - UK Grocery behaviours is the next sustainability frontier”,
forecast.html?symb=FB Survey 2015, UK Ethnographic Research 2015 edie, 9th October 2019
https://www.edie.net/news/7/
50 “Study: Social media overtakes print for 1st 65 McKinsey Returns management survey 2018 European-CEOs--Changing-consumer-
time in global ad spending”, Mobile Marketer, behaviours-is-the-next-sustainability-frontier/
8th October 2019, https://www.mobilemarketer. 66 “Inside Nordstrom Local: Lessons learned,
com/news/study-social-media-overtakes-print- the NY opportunity”, WWD, 5th September 81 Ibid
for-1st-time-in-global-ad-spending/564531/ 2019, https://wwd.com/business-news/
retail/nordstrom-nordstrom-local-new-york- 82 Farra, Emily, “150 brands have joined
51 “The Golden Age of Instagram Marketing is city-1203254475/ Emmanuel Macron’s “Fashion Pact” to make the
over”, The Business of Fashion, 5th August 2019, fashion industry more sustainable”, Vogue, 26th
https://www.businessoffashion.com/articles/ 67 “Inside Anthropologie’s new ‘neighbour- August 2019, https://www.vogue.com/article/
professional/social-media-advertising-ris- hood’ store concept”; Drapers, 11th April fashion-pact-sustainability-g7-summit-emma-
ing-costs-instagram-facebook 2019, https://www.drapersonline.com/news/ nuel-macron
top-feature/inside-the-new-anthropologie-lo-
52 Hammett, Ellen, “P&G puts focus on reach: cal-store/7035352.article 83 “24 new companies join the
It’s a more important measure than spend”, Fashion Pact”, Kering, 25th October
Marketing Week, 17th June 2019, https://www. 68 “Developers push mixed-use projects amid 2019, https://www.kering.com/en/
marketingweek.com/pg-reach-ad-spend/ changing customer lifestyles”, The Nation news/24-new-companies-join-the-fashion-pact
Thailand, 18th March 2018, https://www.
53 “’Mommy bloggers’ study reveals factors nationthailand.com/Real_Estate/30341200 84 Conlon, Scarlett, “Zara clothes to be made
that drive success in social influencer from 1005 sustainable fabrics by 2025”,
marketing”, Newswise, 29th July 2019, 69 Hall, Casey, “Is Suburbia China’s Next The Guardian, 17th July 2019, https://www.
https://www.newswise.com/articles/ Retail Gold Mine?”, The Business of Fashion, theguardian.com/fashion/2019/jul/17/
mommy-bloggers-study-reveals-factors-that- 9th October 2019, https://www.busines- zara-collections-to-be-made-from-100-sus-
drive-success-in-social-influencer-marketing soffashion.com/articles/professional/ tainable-fabrics
shanghais-unlikely-retail-eldorado-suburbia
54 “Instagram influencer engagement hovers 85 “H&M Group Sustainability Report
near all-time lows, study says”, Mobile Marketer, 70 McKinsey Omnichannel Apparel Survey, 2017”, H&M, https://about.hm.com/content/
9th July 2019, https://www.mobilemarketer. 2018, BRP 2019 Customer Engagement Survey, dam/hmgroup/groupsite/documents/
com/news/instagram-influencer-engagement- Forbes, Think With Google, Marketing Dive, masterlanguage/CSR/reports/HM_group_
hovers-near-all-time-lows-study-says/558331/ Forrester SustainabilityReport_2017.pdf
55 “’Mommy bloggers’ study reveals factors 71 Gray, Alistair, “McKinsey to start selling 86 Segran, Elizabeth, “How Everlane is building
that drive success in social influencer underwear and make-up”, Financial Times, 26th the next-gen clothing brand”, Fast Company,
marketing”, Newswise, 29th July 2019, September 2019, https://www.ft.com/content/ 22nd February 2018, https://www.fastcompany.
https://www.newswise.com/articles/ ecac8728-df3c-11e9-9743-db5a370481bc com/40525607/how-everlane-is-building-the-
mommy-bloggers-study-reveals-factors-that- next-gen-clothing-brand
drive-success-in-social-influencer-marketing 72 Ibid
87 “Fashion’s new must-have: sustainable
56 BoF-McKinsey State of Fashion 2020 Survey 73 McKinsey Omnichannel Apparel Survey, sourcing at scale”, McKinsey Apparel CPO
2018, BRP 2019 Customer Engagement Survey, Survey 2019, October 2019, https://www.
57 “50 years of Ralph Lauren”, High Forbes, Think With Google, Marketing Dive mckinsey.com/industries/retail/our-insights/
Snobiety, https://www.highsnobiety.com/p/ fashions-new-must-have-sustainable-sourcing-
ralph-lauren-brand-history/ 74 Chinasamy, Jasmine, “A monstrous at-scale
disposable industry: Fast facts about fast
58 “Fortnite earned record $2.4bn in 2018, fashion”, Unearthed, 12th September 2019, 88 “The Sustainability EDIT”, Edited, https://
the ‘most annual revenue of any game in https://unearthed.greenpeace.org/2019/09/12/ try.edited.com/sustainability/
history’”, The Telegraph, 17th January 2019, fast-facts-about-fast-fashion/
https://www.telegraph.co.uk/gaming/news/ 89 Hackling, Celia, “Pulse of the fashion
fortnite-earned-annual-revenue-game-histo- 75 Guilbault, Laure and Kent, Sarah, “Kering industry 2019 update released”, Global
ry-2018/ Chief to Present Industry Sustainability Pact Fashion Agenda, 7th May 2019, https://www.
to G7”, Business of Fashion, 23rd August 2019, globalfashionagenda.com/pulse-of-fashion-in-
59 “Why gamers mean big business”, The https://www.businessoffashion.com/articles/ dustry-2019-update-released/#
Business of Fashion, 20th February 2019, news-analysis/kering-chief-to-present-indus-
https://www.businessoffashion.com/articles/ try-sustainability-pact-to-g7 90 Bauck, Whitney, “Fashion brands are
professional/why-female-gamers-are-next-lev- claiming to be ‘carbon neutral’ — but is it
el-consumers-mac-honour-of-kings 76 Hitti, Natashah, “Creativity in fashion greenwashing?”, Fashionista, 26th September
“doesn’t mean creating more stuff”, says 2019, https://fashionista.com/2019/09/
60 McKinsey analysis based on WeChat Social Extinction Rebellion’s Sara Arnold”, Dezeen, carbon-neutral-fashion-brands-greenwashing
Commerce Report 2018 24th September 2019, https://www.dezeen.
com/2019/09/24/extinction-rebellion-lon- 91 Mahamadi, Hiba, “Eco-fashion brand
61 McKinsey New Age of the Consumer US don-fashion-week-funeral-interview/ ‘exaggerated’ credentials”, Ecologist, 24th
Survey 2019 September 2019, https://theecologist.org/2019/
77 McKinsey New Age of the Consumer US sep/24/eco-fashion-brand-exaggerat-
62 ”How mobile-first connections drive local Survey, 2019 ed-green-credentials
103
END NOTES
92 Segran, Elizabeth, “H&M, Zara, and other syncs with your phone….for $1k?!”, the Hustle, October 2019, https://www.businesswire.
fashion brands are tricking shoppers with vague 16th September 2019, https://thehustle. com/news/home/20180930005037/en/
sustainability claims”, 7th August 2019, https:// co/09162019-google-backpack-jacquard/ Millennials-Biggest-Spenders-Holiday-Season-
www.fastcompany.com/90385370/hm-zara- Accenture-Survey
and-other-fashion-brands-are-tricking-con- 106 “Recycling facilities takes fashion
sumers-with-vague-sustainability-claims industry one step closer to circularity”, 117 “For people with disabilities, a trend in
H&M press release, 3rd September 2018, “adaptive” clothing”, CBS News, 12th December
93 Lane, Mark, “Consumers: missing link https://hmfoundation.com/news/new-facil- 2018, https://www.cbsnews.com/news/
for Higg Index?”, Apparel Insider, 26th ities-for-textile-blend-recycling-takes-fash- for-people-with-disabilities-a-trend-in-adap-
July 2019, https://apparelinsider.com/ ion-industry-one-step-closer-to-circularity/ tive-clothing/
consumers-missing-link-for-higg-index/
107 “Innovative Textiles – reinventing fashion”, 118 “Buying Power: Quick Take”, Catalyst, 27th
94 McKinsey Strategy and Corporate Finance European Commission, 3rd July 2019, https:// November 2018, https://www.catalyst.org/
(S&CF) Growth Analytics, based on 2013-Q1 ec.europa.eu/info/funding-tenders/opportuni- research/buying-power/
2018 patent data, published with an 18-month ties/portal/screen/opportunities/topic-details/
delay. Estimate of patent application increase ce-fnr-14-2020 119 “Black superstars pitch Adidas shoes. Its
based on McKinsey projection for data to end black workers say they’re sidelined”, The New
2019 108 “DoD Announces Award of New York Times, 19th June 2019, https://www.
Revolutionary Fibers and Textiles nytimes.com/2019/06/19/business/adidas-di-
95 “Fashion’s new must-have: sustainable Manufacturing Innovation Hub Lead versity-employees.html
sourcing at scale”, McKinsey Apparel CPO in Cambridge, Massachusetts”, US
Survey 2019, October 2019, https://www. Department of Defense, 1st April 2016, 120 “Inclusion and diversity in the American
mckinsey.com/industries/retail/our-insights/ https://www.defense.gov/Newsroom/ fashion industry”, CFDA, PVH and the Dagoba
fashions-new-must-have-sustainable-sourcing- Releases/Release/Article/710462/ Group, January 2019,, https://cfda.com/news/
at-scale dod-announces-award-of-new-revolution- introducing-a-briefing-on-diversity-inclu-
ary-fibers-and-textiles-manufacturing-inno/ sion-in-american-fashion
96 BoF-McKinsey State of Fashion 2020 Survey
109 Betteride, Thom, “There’s Now a Lottery 121 Hunt, Vivian, Yee, Lareina, Prince, Sara,
97 McKinsey New Age of the Consumer US for This North Face x Spiber Parka Made of and Dixon-Fyle, Sundiatu, “Delivering
Survey 2019 Fermented Proteins”, Highsnobiety, August through Diversity”, McKinsey & Company,
The State of Fashion 2020
104
129 “Alibaba doubles down on Lazada blossom-premiere-vision-driven-by-demand- & Company, 24th July 2019, https://www.
with fresh $2B investment and new for-high-end-sustainable-fabrics-1203217372/ businessoffashion.com/articles/opinion/
CEO”, Techcrunch, March 2018, op-ed-winner-takes-all-trend-raises-tough-
https://techcrunch.com/2018/03/18/ 142 Mentions of “online”, “e-commerce”, questions-for-everyone-else
alibaba-doubles-down-on-lazada/ “ecommerce” and “digital” in year-end earnings
calls across our top 10 super winners, from 154 Gebel, Meira and Brandt, Libertina, “Meet
130 “Bukalapak launches BukaGlobal, opening company earnings call transcripts the Wertheimers, the secretive French brothers
platform to international uses”, TechinAsia, worth $30.8 billion who control Chanel, own
May 2019, https://www.techinasia.com/ 143 McKinsey Growth analytics, as of October vineyards in France and Napa Valley, and breed
bukalapak-launch-bukaglobal-opening-plat- 2019 racehorses”, Business Insider, 1st July 2019,
form-international-users https://www.businessinsider.com/wertheimer-
144 Winck, Ben, “The batch of companies family-chanel-fortune-gerard-alain-vineyards-
131 “Tokopedia, Gojek, and Grab partner with IPOing in 2019 is the least profitable since thoroughbred-net-worth-2019-2.
Jakarta’s government to accelerate smart the tech bubble, Goldman Sachs finds,”
city development”, KrASIA, September 2019, MarketsInsider, 18th September 2019, https:// 155 “BoF FAQs: Chanel”, Business of Fashion,
https://kr-asia.com/tokopedia-gojek-and-gr- markets.businessinsider.com/news/stocks/ 20th December 2018, https://www.businessof-
ab-partner-with-jakartas-government-to-ac- ipo-market-new-public-companies-least-profit- fashion.com/articles/careers/bof-faqs-chanel.
celerate-smart-city-development able-since-tech-bubble-2019-9-1028534694
156 Malviya, Sagar, “Decathlon overtakes
132 Fedorenko, Sasha, “Alipay and Adyen team 145 “57. Mike Wilson: Are Markets Rethinking Adidas, Nike in sports gear retailing”, The
up to streamline global payments on Alibaba Pricey Growth Stocks?”, Morgan Stanley Economic Times, 10th April 2019, https://
marketplace ecosystem”, Tamebay, August Thoughts on the market podcast, 30th economictimes.indiatimes.com/industry/
2019, https://tamebay.com/2019/08/alipay- September 2019 services/retail/decathlon-overtakes-
and-adyen-team-up-to-streamline-global-pay- adidas-nike-in-sports-gear-retailing/
ments-on-alibaba-marketplace-ecosystem.html 146 McKinsey analysis, as of October 21st. articleshow/68804024.cms?from=mdr.
Includes IPOs in Nov 2017 – Oct 2019 -
133 “Amazon sells clothes from Global Fashion Group, The RealReal, Jumia 157 “Growth despite difficult overall climate
factories other retailers blacklist”, Technologies, Ruhnn Holding, Mogu, Revolve, on fashion market”, Deichmann, 14th March
The Wall Street Journal, 23rd October Farfetch. Adika Style excluded due to limited 2019, https://corpsite.deichmann.com/en/
2019, https://www.wsj.com/articles/ liquidity blog/press-releases/growth-despite-diffi-
amazon-sells-clothes-from-factories-other-re- cult-overall-climate-on-fashion-market-
tailers-shun-as-dangerous-11571845003 147 “Poshmark to delay IPO until 2020”, deichmann-group-makes-biggest-acquisi-
Bloomberg via The Business of Fashion, tion-in-companys-history/.
134 BoF-McKinsey State of Fashion 2020 3rd September 2019, https://www.busines-
survey, n=182 soffashion.com/articles/news-analysis/ 158 “Entertainment collaborations”, Swarovski,
poshmark-to-delay-ipo-until-2020 https://www.swarovskigroup.com/S/collabora-
135 “Retailer Insight: Why the role of the buyer tions/Entertainment.en.html.
has changed so much”, Drapers, 21st August 148 “Jet.com falls by wayside as Walmart
2017, https://www.drapersonline.com/news/ focuses on its website, online grocery”, Reuters, 159 Nowicki, Jörg, “Bestseller-Gruppe startet
comment/retailer-insight-why-the-role-of-the- June 2019, https://www.reuters.com/article/ mit RFID” TextilWirtschaft, 5th July 2019,
buyer-has-changed-so-much/7025359.article us-walmart-jet-com/jetcom-falls-by-wayside- https://www.textilwirtschaft.de/business/
as-walmart-focuses-on-its-website-online-gro- news/nach-zara-hm-und-mango-bestseller-
136 Xie, Aroma, “In China, Showrooms cery-idUSKCN1TD2PS gruppe-startet-mit-rfid-220571?crefresh=1.
Blossom”, The Business of Fashion, 19th
January 2015, https://www.businessof- 149 “Bonobos Trims Jobs as Owner 160 “Corporate responsibility”, Clarks, https://
fashion.com/articles/global-currents/ Walmart Seeks to Cut E-Commerce Losses”, www.clarks.com/corporate-responsibility/
showrooms-blossom-china The Wall Street Journal, 7th October index.html.
2019, https://www.wsj.com/articles/
137 Ontimeshow, https://www.ontimeshow. bonobos-cuts-jobs-as-owner-walmart-seeks- 161 “Our story: shoemakers since 1825”, Clarks,
com/en/about to-cut-e-commerce-losses-11570474405 https://www.clarks.com/about-us.html.
138 Ontimeshow Company Profile, Modem, 150 “Rue La La buys Gilt Groupe, combining 162 Bain, Marc, “Chanel is not – it repeats,
http://www.modemonline.com/fashion/ two popular flash sale sites”, Fortune, 4th not – for sale”, Quartz, 17th June 2019, June 17,
mini-web-sites/tradeshows/references/ June 2018, https://fortune.com/2018/06/04/ https://qz.com/1645997/chanel-reports-strong-
ontimeshow rue-la-la-buys-gilt-groupe-combining-two- earnings-and-swears-its-not-for-sale/.
popular-flash-sale-sites/
139 Abel, Katie, “Magic’s Shows are 163 Novellino, Teresa, “Tory Burch plans to
Coming Together Under One Roof at 151 McKinsey & Company’s “Value Creation stay luxuriously private”, New York Business
the Las Vegas Convention Center”, in Fashion”, proprietary research of 180 global Journal, 28th October 2015, https://www.
FootwearNews, 6th February 2019, https:// apparel, fashion and luxury players which bizjournals.com/newyork/news/2015/10/28/
footwearnews.com/2019/business/retail/ decomposes total returns to shareholders and tory-burch-and-co-ceo-want-company-to-stay-
magic-trade-show-las-vegas-convention- underling drivers private.html.
center-move-1202738975/
152 Zipser, Daniel, “The real reason why
140 Ahmed, Osman, “Will Opening Runway Chinese consumers prefer local brands”,
Shows to the Public be a Game Changer McKinsey & Company, 14th December
for Fashion Week?”, 22nd July 2019, 2017, https://www.mckinsey.com/cn/
Vogue, https://www.vogue.co.uk/article/ our-insights/perspectives-on-china-blog/
london-fashion-week-shows-open-to-public the-real-reason-why-chinese-consumers-pre-
fer-local-brands.
141 Wynne, Alex, “Blossom Premiere
Vision Driven by Demand for High-end, 153 Berg, Achim and Lafrenz, Karsten, “Winner-
Sustainable Fabrics”, 9th July 2019, WWD, Takes-All Trend Raises Tough Questions for
https://wwd.com/fashion-news/textiles/ Everyone Else,” Business of Fashion, McKinsey
105
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The State of Fashion 2020
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Fashion & Luxury global leadership team:
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Sajal Kohli Madeleine Tjon Pian Gi
Senior Partner, Mediterranean
Senior Partner, North America Partner, Benelux
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107