Inflation and geopolitical concerns dominate the agenda for 2023, negatively affecting both consumer demand and brands’ operating costs. This year’s report presents a difficult outlook ahead, as fashion companies face challenges and revise forecasts downward after an exceptionally strong 2021, per McKinsey analysis of global data in the fashion industry. Meanwhile, shoppers for luxury items will likely continue to spend largely as they have been, insulated from the impact of the economic slowdown. We foresee that the differences between the shopping habits of low- and high-income households will become more pronounced, as cost-conscious customers are likely to cut back or trade down. This global economic gloom is increasingly reflected in consumers’ shopping habits, and the fashion industry is expecting that demand will be weakened or unpredictable in the year ahead. Meanwhile, extreme weather is negatively affecting supply chains and raw materials across Asia. In China, further COVID-19 outbreaks and the real estate crisis have undermined the region’s growth trajectory, as well as disrupted supply chains. The war in Ukraine is of high concern to the industry, having already disrupted trade routes and triggered an energy crisis that will continue to have impact.
1 Oliver Guyot, “Caught between inflation and rising costs, fashion seeks to strike new balance,” Fashion Network, July 19, 2022.įashion leaders are also watching global headlines closely in the year ahead, as macroeconomic and political uncertainties continue to obstruct business operations and escalate reputational risk. Cotton and cashmere prices, for example, have increased 45 percent and 30 percent year on year, respectively. Fashion companies are also anticipating that inflation will spike their costs, with 97 percent of executives forecasting that their cost of goods sold and SG&A expenses will rise in 2023. They expect that inflation will undercut consumer demand, pushing shoppers to curtail fashion spending or trade down for less expensive products as their energy and grocery bills spike.
Inflation is at the top of executives’ minds for the coming year, according to results from the annual Business of Fashion and McKinsey State of Fashion Survey. Reflecting in-depth research and numerous conversations with industry leaders, it reveals the key trends likely to shape the fashion landscape in the year ahead. The report, the seventh in the annual series, discusses the major themes shaping the fashion economy and assesses a range of possible responses. These are just some of the findings from The State of Fashion 2023, a joint report from the Business of Fashion and McKinsey. These forecasts are reflective of inflation and are calculated in local currencies, meaning that the real impact for the sector could be more negative than these figures suggest. China and the United States are expected to fare better, growing between 2 and 7 percent and between 1 and 6 percent, respectively. McKinsey analysis of fashion forecasts projects relatively slow sales growth of between –2 and +3 percent, weighed down by a contraction in the European market (expected to shrink between 1 and 4 percent) (exhibit). The fashion market, excluding the luxury sector, will struggle to deliver significant growth in 2023. Europe, on the other hand, is under high pressure from currency rates and a growing energy crisis, which are likely to result in modest sales growth for the luxury sector (projected to grow between 3 and 8 percent). Based on McKinsey’s analysis of fashion forecasts, the luxury sector is expected to grow between 5 and 10 percent in 2023, driven by strong momentum in China (projected to grow between 9 and 14 percent) and in the United States (projected to grow between 5 and 10 percent).
Looking forward, we anticipate that the luxury sector will outperform the rest of the industry, as wealthy shoppers continue to travel and spend, and thus remain more insulated from the effects of hyperinflation. This article is a collaborative effort by Imran Amed, representing views from the Business of Fashion, and Sarah André, Anita Balchandani, Achim Berg, and Felix Rölkens, representing views from McKinsey’s Retail Practice.
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