The global fashion industry has proved resilient in recent years. And despite persistent challenges slowing growth in most regions and segments in 2023, experts believe the fashion and retail industry may be able to overcome the headwinds of the coming year. To uncover more about what we can expect and how brands and retailers can best navigate 2024, I dived into the premier report on the fashion industry - The State of Fashion 2024 - for an expert analysis of what might await.

The State of Fashion Report is a highly-regarded annual publication co-authored by the Business of Fashion and McKinsey & Company senior leaders. It assesses the forthcoming headwinds, technological shifts, opportunities, and evolving consumer preferences that will shape the coming year for the fashion industry.

Industry Outlook

The hallmark finding of the 2024 report is that uncertainty reigns supreme, but there are pockets of growth that still present opportunities. In years past, 2022 saw record economic profits off the back of robust margin performance, whilst 2023 was a different story. Difficult challenges spurred by factors such as inflation, interest rates, and geopolitical tension drove down growth in key regions - from Europe to the United States to China.

The report finds that 2024 may bring “subdued economic growth, persistent inflation, and weak consumer confidence." Companies must proactively unlock new pockets of value and new drivers of performance to remain competitive in this environment.

According to McKinsey’s analysis of fashion forecasts, the global industry will post top-line growth of 2 to 4 percent in 2024, with regional and country-level variations. Once again, the luxury segment will likely generate the biggest share of economic profit.

Lower consumer confidence and declining household savings as inflation and interest rates remain above average are the most obvious causes of restrained spending this year. Below is a summary of the 10 major themes identified as shaping the year ahead for brands and retailers

Dominant themes that will shape 2024

The most common concerns for the year ahead from surveyed retail leaders are geopolitical instability and economic volatility. Indeed, uncertainty in the industry reflects the situation at large, yet there is still cause for optimism. Companies will be tightly monitoring their bottom line and “driving growth by precisely managing prices” within competitive environments globally. Remaining innovative and agile to shifting consumer trends will still present areas of rich value creation for brands and retailers. The 10 major themes the report mentions for this year are as follows:

1. Fragmented Future: Consumer intent to spend may fall so brands and retailers should strengthen contingency planning and employ fresh new strategies to improve full-price sell-through.

2. Climate Urgency: The climate crisis will become ever-more visible and threatening, necessitating investments in supply chain resilience and emission reduction worldwide.

3. Vacation Mode: Global travel volumes are expected to exceed pre-pandemic volumes for the first time, which could be a great catalyst for brands and retailers to re-think how they curate their distribution strategy and category mix to appeal to travelers.

4. The New Face of Influence: More focus on authenticity and relatable content in influencer marketing should see brands emphasise video and be open to relinquishing some creative freedom over partnerships.

5. Outdoors Reinvented: There was a massive surge in demand for technical outdoor wear in 2023, and experts predict this demand will not abate. Brands should consider whether they can embed an outdoor, technical focus into their collections to capitalise on this growth.

6. Generative AI’s Creative Crossroads: “73% of fashion executives think gen AI is a 2024 priority for their companies, but only 5% believe they have the capabilities to fully leverage it”. Whoever can leverage it to improve their human workforce will excel.

7. Fast Fashions Power Play: Competition in fast fashion won’t be slowing down anytime soon, with leaders Shein and Temu seeing huge growth in 2023. Quickly adapting to changing consumer tastes, whilst appeasing regulators will dictate who succeeds this year.

8. All Eyes on Brand: Brand marketing appears to be the way forward this year for marketing teams. Consumers care more about emotional connections and engaging stories now, which requires brands to reorient and focus on long-term brand-building strategies.

9. Sustainability Rules: Regulatory changes will begin to have a significant impact on businesses in 2024 so business models must remain agile to stay in alignment with the changes and uncover opportunities.

10. Bullwhip Snaps Back: Consumer demand volatility of recent years has harmed upstream suppliers, putting pressure on suppliers in all major manufacturing regions. To adjust to future demand levels then, brands and retailers must foster stronger strategic partnerships at all levels of the supply chain to ensure there is sufficient capacity in the system.

Impacts on strategy & growth

On the whole, whilst the outcome of the year ahead is uncertain, there is plenty of opportunity for driving strategic growth in economic profits and fostering a closer connection with your customers. Balancing risk but still quickly acting on opportunities will be paramount to success, particularly for brands. Employing all available sales channels with a strategic and capital-efficient approach will allow brands to spread their risk and engender stronger revenue funnels. Strategically supporting D2C with wholesale, or vice versa, will ensure brands maximise revenue whilst carefully strengthening their brand. Ultimately, and to no surprise, brands, and retailers that are agile, innovative, and technological leaders will put themselves in the driver's seat to reap success in 2024.

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Source (original report): https://www.mckinsey.com/industries/retail/our-insights/state-of-fashion#/