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The State of Fashion 2022: An uneven recovery and new frontiers

As Textile Journey, we are very happy to present to you today the “State of Fashion 2022: "An uneven recovery and new frontiers”, a joint work of McKinsey and the BoF Business of Fashion fashion team.

The work is very deep because, over a long period of time, Covid has been in the supply chain, distribution, warehouses, etc. Many weaknesses surfaced. It presents many aspects of fashion, consumer behavior, political aspects, especially why changes are necessary.

We present this time-consuming work to you in two parts, a very challenging and intense read, but the facts, figures, and all relevant aspects make your reading worthwhile.

We haven't read a more in-depth fashion report in all these years! So take your time, a rewarding and insatiable wealth of reading for all readers emerges! So take the time to dig deeper.

With much of the world under Covid-19-related restrictions throughout 2020 and 2021, the global fashion industry has faced extremely challenging conditions. However, after nearly two years of interruption, the industry is starting to recover again.

Despite continued headwinds, there were signs that things were getting better in mid-2021, particularly in markets with high vaccination rates. In the US, the release of pent-up demand has led to so-called "revenge buying" spikes in China, which led to a growth spurt that mirrored an earlier phenomenon. Back to work and special occasion styles topped consumer shopping lists.

This year's Super Winners group is dominated by sportswear brands, luxury players, and local Chinese companies, all of which outperform the market. Geographically, China has recovered to 2019 economic activity levels much faster than the rest of the world. The appetite for local shopping, especially in the luxury segment, fueled Chinese demand, as consumers faced with travel restrictions shifted to local alternatives.

Looking at 2022 overall, the McKinsey Fashion Scenarios suggest that global fashion sales will reach 96 to 101% of 2019 levels in 2021 and 103 to 108% in 2022. Still, overall sales are expected to fully recover next year, while performance will differ across geographies, with growth driven by the US and China as Europe lags behind. In addition, as international tourism remains in recession, the pattern of consumption will continue to evolve, leading to an increased focus on domestic spending. In turn, many companies will recalibrate their retail footprints even amid uncertainty over whether these pandemic-induced behavioral changes will be permanent.

But the market environment will continue to be complex, with new challenges to be addressed amongst logistical bottlenecks, production delays, high shipping costs and material shortages. These will further inflate input costs and force imbalances between supply and demand. The likely result will be higher prices for customers.

Despite widespread operational disruptions, the pandemic has done little to slow the megatrends that are reshaping the industry. In fact, these have accelerated over the past year as industry leaders take bold steps in digital, take action on environmental and social priorities, and, in response, focus more sharply on diversity, equality and inclusion. However, concerns about slow progress in these areas, coupled with all-time high job openings, mean brands will have to work hard to attract and retain talent in the coming year.

Similarly, fashion companies will need to ensure that they act in the interests of all stakeholders, including customers, employees, contractors, investors, and the wider community. Many brands will put more effort into circular business models, greener materials, and more sustainable technologies.

A breakthrough to support these initiatives is blockchain, the underlying technology for digital "product passports". These contain coded information that can add value, support supply chain transparency, and enable authentication – a significant advantage in the fight against fraud.

Online business models were a standout success story of the pandemic. We expect companies to continue investing in digital innovation and experimenting with new approaches to creativity and commerce in 2022. Digital assets such as non-fungible tokens (NFTs), game "skins" and virtual fashion will move closer to the mainstream. some brands are expanding into the digital "metaverse". In-app social commerce will play an increasingly important role in sales and marketing. On the other hand, these opportunities will come with increasing threats of cybercrime and data loss, meaning that companies will have to work hard on resilience in an increasingly risky digital environment.

Overall, global fashion sales are on track to gain momentum in 2022 as more and more hopeful consumers unleash their suppressed purchasing power by renovating their wardrobes as social life begins to resume in many key markets around the world.

BoF-McKinsey State of Fashion In 2022 they chose the first three words to describe their business conditions for the coming year. These words are Healing, Challenging, and Change.

While the global fashion market will continue to grow overall, performance will be uneven across geographies due to their ability to recover from health and economic shocks from the pandemic. The Chinese fashion market – including both luxury and non-luxury segments – has already returned to pre-Covid sales levels.

Various forces are at work to create both opportunities and risks in 2022, including new growth channels, consumer behavior patterns, and complications in the global economy. Executives predict supply chain pressures, rising spending on local luxury amid quieting international travel, and the continued evolution of digital channels will have the biggest impact on their business in 2022. The turmoil of the past two years – among material shortages, shipping bottlenecks and increased consumer demand in some markets, and exacerbated shipping costs – is expected to remain on the agenda of 84% of executives in the BoF-McKinsey survey.

12% of executives view sustainability as an opportunity for the year ahead, arguing that any sustainability-related costs or challenges they face may outweigh the business benefits associated with improving their company's impact on the environment and society.

Alongside sustainability, managers are also looking for “digital” and “consumer engagement” as opportunities for 2022, cited by 32% and 11%, respectively, of fashion managers.

While both digital and sustainability opportunities are longer-term themes highlighted by executives each year, a new opportunity voiced by executives for 2022, consumer engagement, reflects the view that customer experiences are becoming more important with brands across online and offline channels. for brand differentiation in a highly competitive market.

Therefore, fashion players will need to accelerate their use of data and analytics across business functions to develop customer insights and adjust their strategies accordingly.

Here are 10 key focus areas that will set the fashion industry agenda in 2022, according to the McKinsey State of Fashion:

1. An unstable recovery in the fashion industry.

Countries with strong health systems and economic resilience tend to recover better from the economic stresses caused by Covid-19. To offset this volatile recovery, international fashion companies will need to be firm in their investment decisions, regularly reassess local conditions and mitigate market-specific risks.

2. Supply chain chaos must be overcome

The fashion industry is dependent on a complex network of global supply chains. Faced with logistical bottlenecks, rising shipping costs and numerous supply shortages, companies need to adopt modern supply chain management and plan for greater flexibility to soften the chaos.

3. Focus falls on domestic spending in 2022

Travel has always been the main driver of luxury spending. But as tourism is only expected to recover between 2023 and 2024, this shift from foreign to domestic spending in consumer habits needs to be exploited. Therefore, luxury companies should engage more with local customers and try to optimize their retail presence.

4. Earlier identification of customer preferences through data-driven product development

After almost two years of increased focus on home wear and sportswear, our projected spending in 2022 will fall further on clothing related to social freedoms outside the home. To understand these preferences, brands must increasingly rely on data-driven product development to adjust their inventory accordingly.

5. The concept of "metaverse" can mean reaching a younger target group.

As consumers spend more and more time online and the hype around the metadata warehouse spreads to virtual offerings, leading fashion companies will need to find new digital ways to appeal to younger audiences.

6. Social commerce for seamless digital shopping experiences

Social commerce is becoming more and more popular with brands, consumers and investors. While apps may differ in some countries, brands should focus on special in-app purchases and test the benefits of live streaming and augmented reality trials.

7. Recyclable textiles for greener production

A powerful way the fashion industry can reduce its environmental impact is through the circular economy. In fact, it is now widely promoted and promises to limit the extraction of new raw materials and reduce textile waste.

8. Use of digital product passports

To promote authenticity, transparency, and sustainability, brands use a range of technologies to store and share product information with consumers and partners. To get the most out of these so-called digital product passports, companies need to agree on common standards to maintain their customers' loyalty.

9. The evolution of corporate cyber defense

As the fashion industry becomes more digital, companies are increasingly faced with cyber attacks and inappropriate processing of customer data. With the increasing complexity of cybercrime, brands need to take urgent action to ensure the digital security of customer data.

10. Review the operating philosophy to retain employees.

Companies that rely on the appeal of their brands to attract employees will have to work harder in the future. Overall, there is a trend for workers in industries to rethink their priorities and more job opportunities are emerging. From this point forward, companies need to rethink their philosophy and provide an increasingly flexible, diverse and digitized workplace.

The first part of the report ends here. The second one will come in a week! Don't forget to subscribe!

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