The combined effects of the war in Ukraine, inflation and supply chain pressures paint a bleak picture for the fashion industry next year. As a result, 56 percent of fashion executives expect the outlook to deteriorate in 2023.
The State of Fashion 2023 report, published by The Business of Fashion and McKinsey & Company, reveals that despite the positive outlook at the end of the pandemic, the industry’s situation is far from encouraging. After the Covid-19 period, the players in the sector even, for the most part, registered strong growth. Global industry revenue in 2021 increased 21% over the prior year and continued to increase in the first half of 2022, increasing 13%. However, a series of challenges that arose during the year strongly impacted this progress and led to a slowdown in progress.
The war in Ukraine, which began in February, has shocked the industry and sparked an energy crisis across Europe. Fashion executives have had to deal with an increasingly fragile global economy, which will have a severe impact on the industry in 2023. 85 percent of fashion executives expect inflation to remain a challenge next year and 58 percent believe that the energy crisis will continue to weaken. The market. Global GDP growth is expected to slow to around 2.2 percent in 2023 and the threat of a recession looms over many major economies.
“The world economy is facing one of the most difficult years ahead: with rising inflation, the cost of living crisis and the continuing fallout from the war in Ukraine creating a ‘polycrisis’ that requires careful management of the costs and specific growth strategies to take advantage of the opportunities in the luxury segment, particularly in the Middle East and Asia-Pacific, together with the resale, rental and discount rental market for customers who exchange their clothes, ”he analyzes in a statement Imran Amed, founder and CEO of The Business of Fashion.
The luxury industry relatively safe
Luxury fashion sales are expected to grow 5-10% overall in 2023. Fashion companies as a whole have been able to build strong foundations in 2021 and the first half of 2022 to help them weather the storm; the share of “value-destroying” companies (i.e., those that generate negative economic profits) is now at its lowest level since 2013.
High-income households will be less affected by this crisis than low-income households and will continue to purchase luxury items. Low-income households will look to reduce or even eliminate spending on items like fashion. Many consumers are likely to shop at convenience stores and discount retailers.
Rising inflation in many major economies has created a cost-of-living crisis that is leading many consumers to reevaluate and even drastically change their spending habits. Nearly three-quarters of US consumers searched for cheaper brands or products between April and July 2022. There is strong pressure on brands to remain attractive to consumers, given the difficult economic environment.
The uncertain economic landscape is leading fashion companies to reassess the geographies in which they operate, which could deprive certain countries or regions of their priority and turn to others that offer better potential. In particular, China’s economy, long seen as the industry’s growth engine, is expected to slow in 2023, with GDP rising to just 3.2 percent from 8.1 percent in 2021. , which will lead some executives to look for opportunities elsewhere, probably in the short term.
88 percent of executives cite the Middle East first when identifying markets with the same or better growth prospects in 2023 than the previous year. The luxury market in the Gulf Cooperation Council (GCC) is expected to generate $11 billion in sales by 2023, accounting for 60 percent of GCC consumer luxury spending in the country. Additionally, 50 percent of fashion executives are expected to increase their company’s presence in North America in the coming year. Overall, US retail is expected to end 2022 with sales at their highest level in two decades. At the same time, Japan and South Korea are renewing their reputations as trusted growth engines in the Asia-Pacific region.
The fight against greenwashing
In this delicate context, brands will be more scrutinized. Environmental and social impact will be discussed, as well as how brands communicate their sustainability credentials to consumers. However, 79 percent of fashion executives lament the lack of industry standards to help them measure their sustainability performance.
For example, in France, new legislation due in 2023 will require brands to label clothing and textiles showing the environmental “score” of each item, to help consumers make more informed purchasing decisions.
With readers in more than 25 countries, The Business of Fashion is an independent fashion outlet. Each year, BoF partners with international management consultancy McKinsey to produce The State of Fashion 2023 report.