2022 offers new opportunities for the fashion industry. After difficult pandemic years, growth is on the horizon again, at least if the fashion sector commits to sustainable and digital innovation. But who are the biggest players today?
Unevenly distributed by Covid-19
Next year, the global fashion industry will find its feet again. That is the hopeful message McKinsey gives in its report The State of Fashion 2022. After two years of pandemic troubles, consumers will be ready again to buy a new wardrobe. The motto will be ‘dress to impress’.
That is what most CEOs expect anyway: 75% of top managers in the luxury segment, 61% in the mid-market segment and 50% in the budget segment predict better trading conditions. Especially in the US and China, because in Europe McKinsey fears that the lack of international tourism will slow down the recovery. Not all regions are emerging equally from the pandemic and its consequences.
Economic shifts are causing a widening wealth gap and logistical challenges also persist. Potential inventory and raw material shortages are a major challenge as the supply chain is disrupted and transportation costs rise. Fashion brands expect selling prices to rise by an average of 3.2% in 2022, but even then they fear for their profitability.
Global fashion market is shrinking
A balance will have to be found between being cautious and still investing in the necessary renewal. After all, the past two years have already left significant craters. In 2019-20, the fashion sector experienced a 20% drop in turnover, while profit margins also fell. As much as 69% of all major fashion companies in the McKinsey Global Fashion Index (MGFI) saw their market value decline, while around 7% of companies disappeared from the market altogether – either due to financial difficulties or being bought by rivals.
Fortunately, a number of clear trends are emerging, which point the way forward for the near future. The most important themes are digitisation and sustainability, but McKinsey goes further than that. For example, it is striking that no less than 81% of Generation Z youngsters play video games, on average 7.3 hours a week. Instead of classic e-commerce, hyper-interactive digital environments are now pushing the boundaries of fashion.
Cyber creativity and security
By 2022, McKinsey expects new approaches to online creativity and retail, with NFTs, gaming skins and virtual fashion increasingly reaching the mainstream. Forward-thinking luxury players such as Balenciaga and Gucci have taken their first steps into the all-digital world of the metaverse, and the coming year will see a rapid acceleration. Virtual shops, gaming and digital events will meet in social commerce: online shopping will become a social event, with live chat, streaming and augmented reality.
Cyber protection is becoming more important than ever in a digital setting. More than half of top executives fear a cyber-attack by 2022. Attracting and retaining the right digital talent therefore becomes crucial. There are many vacancies that remain unfilled and competition among employers is fierce. Promising employees a good salary and job security is not enough: 45% of employees in the fashion industry consider the feeling of working towards a greater goal or mission decisive in their choice of job.
Clothes get a passport
Sustainability and purpose will remain a priority for consumers in 2022. They want to know where materials come from, how products are made and whether workers are treated fairly. In response, more and more companies are expanding their sustainable assortments and work to make their supply chains more sustainable. Digital product passports are gaining popularity as a tool to ensure this transparency.
Each item is given a unique code, so that it can be traced throughout the value chain. Even after the sale: if an item can be identified anytime and anywhere, second-hand sales, exchanges and recycling become easier. Two out of five fashion managers want to introduce product passports by 2022 or already have them. In this way, they want to move towards a circular model, something that 60% of fashion companies already have plans for.
Super winners take the plunge
Which fashion players are strongest today? Every year, McKinsey makes a ranking of what it calls ‘super winners’: companies that have seen their market value rise remarkably, in a market that is otherwise barely growing. They are the winners of the winner-takes-all trend that has been going on for years in the fashion industry.
Invariably, the same powers, such as Nike, Inditex and luxury conglomerates LVMH and Kering, return in the list. In 2020, the same names appear as well, as discount and luxury continued to outperform despite falling margins. The mid-market segment in particular remained under pressure. However, it is notable that 2020 was a breakthrough year for sportswear, with 42% of market growth coming from sports brands and retailers. The Chinese also did well, thanks to a faster recovery from the corona crisis.
The top ten companies with the highest economic profits in 2019 and 2020 are:
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Nike
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Inditex (Zara, Bershka and others)
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Kering (Gucci, Balenciaga a.o.)
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LVMH (Louis Vuitton, Dior a.o.)
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Hermès
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Adidas
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Fast Retailing (Uniqlo a.o.)
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Anta Sports (Fila, Peak Performance a.o.)
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L Brands (Victoria’s Secret a.o.)
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TJX Companies (T.K. Maxx a.o.)
